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

Nat Gas projections. The period of season strength is September through to December. We have seen below average demand in the summer because it has not been a very hot summer. There has not been that consumption that can lift prices higher. We have a head and shoulders pattern this year. Support is about $2.64. If you get a break on that you see a dip of significant magnitude ($1.50). He has not seen a bearish pattern play out to that magnitude. We are expecting a colder than average winter. We still have lots of time to watch it. Just sit tight for now.

S&P – where is the support level? We don’t have the setting for a dramatic sell off. It will be an orderly sell off of 5-10%.

Markets. It is pretty quiet and he has been down to 3/4ths staff some days. Trading volumes in the markets are down these days. The repatriation of cash may now not happen and that is pressuring the S&P. Year to date the US is up but in CAD$ really it is not. Canadian markets are flat also. Banks look attractive. Energy is cheap, but you have to believe in the price. The rest of the Canadian market is actually up. Canada is not as cheap as it appears and you have to be a stock picker.

Market. This has been an impressive earning season off the 1^st quarter, which was actually more impressive. We were up over 15% in the 1^st quarter and over 10% in the 2^nd quarter. Earnings are certainly driving this market, and validating the market. The VIX has been at historic lows. Today, we saw the market paying attention to what was happening in Washington. The worry is that the exodus of CEOs in the last few days, might be followed by Trump’s inner circle within the White House. The US economy is on solid footing. Companies are investing and spending again. Far too much attention is paid to politics and policies. Companies are taking advantage of a resurgence in global growth. We are in the procyclical market, which tends to last for a while, and are in the early stages of that move.

Market. Has a strong belief that we have been in a secular bull market for equities that got underway in 2013 when it took out the 2,000 highs in the US. We probably have a persistent rising market for quite a long period of time, but with some interruptions. A correction was ended in February 2016, which probably opened a window for 2-3 years of a pretty low volatility market. Seasonally July, August, September are the 3 toughest months of the year. It is interesting though that the month of July is much better than seasonal. Historically, if July is good, then August and September are less volatile than typical, which has been the case so far. Over the last 3-4 weeks, in equity markets globally, the work he does around risks has shown an uptick in risks as breadth, the percentage of stocks doing well, has been deteriorating. That always causes him to get a little more cautious. He doesn’t expect significant downside. Over the next month or 2 you could see 3%-5%. However, given that July was a strong as it was and that the economic data is improving and the earnings have been very, very good, he wouldn’t expect that kind of pullback, but it is possible. Thinks people don’t fully understand that not only are earnings beating, but this quarter was the best beat for both revenue and earnings since 2010. Earnings estimates are being revised higher. The market is handling new very, very well, and that is a great indicator of the health of the market.

Market. When Trump was first elected, sentiment was very positive. Pro-growth policies would be put in place. So far, he is not accomplished anything, and it is somewhat discouraging that the councils are being disbanded, as he would be getting good advice from various CEOs. It is somewhat encouraging that nothing has been put through and markets are continuing to go higher, especially in the US. It has really been driven by profit growth. We are now trading above historical averages and we really need to see proper growth come through, which it is doing. Second quarter earnings is just winding down and have come in stronger than expected, double-digit year-over-year. Expectation was around 7%. What is more encouraging, is that we are also seeing growth in the euro zone economies. Japan is even growing now. China seems to be stabilizing. To her, equities still remain the asset class of choice if investors can withstand the volatility and the risk associated with them.

Income Investors. Beware of rates for both fixed income and equities. For the last several years there has been a real appetite for yield. Based on demographics, more and more Canadians and Americans have either retired or are close to it. Their #1 objective was generating enough income to maintain their lifestyle that they were used to while working. That is partly why there has been such an inflow into dividend paying stocks. Owning bonds at 2%-2.5% just doesn’t cut it. You need to be really thinking and understanding how interest sensitive your portfolio really is. As a general rule, yield plays are often the most interest sensitive. Many Canadians don’t realize that pipelines, telcos, REITs, utilities, etc. are quite interest sensitive, because this is really the first time they’ve had a meaningful exposure. Going into the first rate hike, with investors having a larger exposure to equities, it is important to understand what the potential is for a portfolio in a rising interest rate environment for fixed income and equities.

When constructing a portfolio between bonds, Index ETF’s and dividends, which should go in TFSA, RRSP, and nonregistered accounts? There are 2 considerations. The one people look at right away are tax considerations. In a registered account such as a TFSA or RRSP, it doesn’t matter what kind of income/return you generate because they are tax sheltered. Sometimes hold the least tax efficient instruments in their Registered accounts such as bonds, and/or the more tax favourable instruments outside of the registered accounts. He tends not to, because liquidity requirements vary depending on the kind of account it is. If you hold your least liquid assets in registered accounts, you may not want to withdraw from the account which provides you with liquidity. When you withdraw stocks from a non-registered account in a bad market, you have to sell at less than what you generally paid for it. Build a balanced portfolio in all the different accounts, knowing that you will have liquidity when you need it.

Marijuana stocks? Feels the easy money has been made. If you are getting in it at this point, risk management is more important now than ever, because most of the names have run up considerably. If you have to be in the space, he would buy a few of them, and split up your application amongst a handful.

Investing in the current market? The challenge is timing the market, which you are not going to be able to do. You have to feel comfortable whenever you buy, so that when times do get bad, you can look at your portfolio and know that you know the business and are comfortable. If there is a correction, for the most part it is widespread and you are going to see a haircut on all names. In a high cash weighting, you sit on the sidelines and watch the market continue to go higher and higher, which has gone on for the last 2 years. The market is expensive if you look at it purely on a P/E basis, compared to where it has been for the last 30 years. However, through stock picking, you can build the portfolio that has a lower P/E ratio than the overall market. Secondly, when you compare the P/E ratio of the market to the last 30 years, it is really only one part of the story, because we have never had interest rates as low as they are in the last 30 years. To quantify how expensive or not expensive the market is, you can look at what the 10 year is paying, and what the average dividend yield of the market is, and see the spread above what you are getting as a yield on the S&P 500 or the TSX, compared to the 10 year. It is quite wide. Leg your money in, which helps you get dollar cost averaging. Also, understand the businesses that you buy.

Market. The market has been sliding off. Small caps have been particularly static or worse, and large caps not much better. We’ve had strength in the Cdn$ for some time, and that has now rolled over, at least temporarily. US stocks seem to do nothing, but go up. He tends to maintain a view that if a stock does brilliantly well for half a year, it cannot usually do as well in the 2^nd half.

Gold. How do you know when to get in or out as a safe bet? You can’t. There is no way of knowing ever.

Markets. He has gotten out of more companies in the past 4 to 5 months than possibly ever before. He is taking some great profits. His picks today are down in value and have a long way up to go. When markets are up so high it is worth taking money off the table. Don’t get greedy. At some point there will be a blow off, but the trend right now is upwards. North Korea, he does not think is quite as significant as some people do. He thinks volatility can be his friend.

Markets. We are seeing an equity rebound as we saw nothing over the weekend. Nobody knows what the odds are of a much larger correction. If you look at the Cuban Missile Crisis, the market was down over 20%. This is the best example that is similar to the North Korean Issue. In all likelihood we are not going to get to the crisis, but the markets may react. Europe has started to underperform because of the strength of the Euro. Their index hit a key technical level last week. (See UUP-N). In all likelihood the US$ gets a technical bounce. He thinks we will settle into a new trading range. The Canadian dollar will probably not get too much stronger than it is now.

Education Segment. Market Sell-Offs. Every time we get a pullback we make a higher low followed by a higher high in the S&P. The Russell 2000 has been testing support. Until it breaks $133 we won’t have a technical breakdown. The average stock is weakening, but it is not until the market breaks support that we will have a problem.