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

Market. Regarding the rhetoric between Trump and North Korea, it is incredible how little it takes for people to react. He saw some pretty big increases in the Put to Call ratios and a pretty big spike in option volatility. He considers those things to be bullish. People getting nervous is actually a bullish sign, at least for the intermediate term. He likes consumer discretionary, technology and healthcare. Healthcare in particular is quite interesting because it went through a nearly 2 year time out between Hillary’s tweets and the recent increase and the relative strength of the healthcare sector. That does require some stock picking. We are dealing with a kind of market where ETFs and index solutions are not going to get results that people want, because indexes contain both the winners and losers. You need to pick stocks that are going to work, which is why he is focused on building portfolios with no more than 25 companies in them.

US$ over the next few years? Thinks it will be going up. There was a very special set of circumstances from 1970 until 2012, which was the US buying more and more imported oil as the economy grew. In 2012, the US started dramatically increasing oil production, and are currently exporting a million barrels a day, and can export a lot more. Although he thinks the US$ is going up, it is going to fluctuate.

Market. The TSX is back to where it was 6 months ago. New York is holding its own, but with political things up in the air, you really have a hard time making predictions. Doesn’t think either of the US parties are that predictable, so it is probably a good time to keep your head down, but keep calm and carry on. From a technical standpoint, it certainly looked like the TSX had bottomed and starting to edge up, until the North Korean situation came up. The Canadian side is probably seeing better value than the US. A fair amount of Cdn investment money has gone into the US, and he expects some of that to come back. Thinks 2 years from now we will still have no inflation and low interest rates.

Gold? Historically you stepped into gold if inflation started to raise its ugly head. That is not happening. Also, you would buy this when there was political uncertainty. Right now, it is just about at a resistant point, so it has already had a reasonable run up. If it breaks through $1300, then you could have a hard look at this.

Emerging-market ETF? He’s in the process of looking at the sector. The background is definitely improving. Things have improved. Interest rates have gone up. Liquidity has improved. Money looking for higher returns is beginning to sift into those markets. Worth looking at.

Markets. We could well see a pause in stocks. Typically August, September or October you have a check back. One out of 10 leads to something worse like a recession, but he does not see us close to that. We are due for a 5% pullback. Something will always cause sellers to come out of the woodwork and we are due for that. Oil moved back a little. If it goes above $50 something will be done to pull it back. The US$ is helping commodities, with it having come off a little.

Market. The problems between Trump and the North Koreans has certainly caused problems, which the market doesn’t like. However, we also have to remember that we are just coming off an all-time high in the US market. That, in itself, is a pretty good indicator for markets. The market has gone up so much, that investors are questioning if it is coming off. It is hard to take the headlines and say it is going to derail the markets. It has been a decent earnings season. Given where valuations are, and where global growth is, it is hard if taking a passive strategy. That is not going to work. She runs focus portfolios of 15-25 stocks, which is the way to go. Just having broad market exposure is not going to work for you going forward. Feels people are way overdiversified. Diversification is good, but you don’t want to be where people are today. She focuses on companies that have strong catalysts, where ebbs and flows of the market don’t seem to affect them as much.

Market. He is negative on Canada, and prefers where the risk/return balance makes sense for his investors, because he is capital reservation first, always looking at risks, so sometimes it makes sense to avoid an area. The backdrop for Canada, looking forward, is just not as rosy as the 4%-4.5% GDP growth would have you believe. We are probably in the midst of a policy error by the Bank of Canada. The problem is, we are nowhere near the inflation target and all his factors don’t suggest strong growth going forward.

Economy. We are seeing some real improvement in the global economy. When looking the statistics, you are seeing better global growth. There are low interest rates which is going to take a long time before going up. Also, there is relatively low inflation. The quandary the Fed has is that unemployment is going down and inflation remains relatively low, which is a very difficult situation if they want to increase rates. All those things bode well for the stock market, and earnings are very good.

Market. The TSX has had a very difficult year. 2016 was a banner year, and we are giving that back this year in terms of relative underperformance. However, you can forget the impact of the currency. That was the big surprise coming out of the 2^nd quarter to now, with the Bank of Canada announcing they were not going to raise interest rates. There was a huge Short covering rally that took the loonie up to $.80. That nips into those returns. As an investor, as opposed to a trader, he suggests we just hold our positions. Had felt that at $.75, the Cdn$ was probably undervalued. As it got closer to $.80, he was looking to add more US names, particularly in those areas we don’t have in Canada. Feels the US market is overvalued and the Canadian market is undervalued, and that tends to correct over time.

Gold companies. There are 2 kinds of gold companies. Operating companies, the ones that build and operate mines, and royalty companies. He owns Goldcorp (G-T) and Agnico-Eagle (AEM-T). Agnico has been an outstanding operating company, and if you have to buy an operator, you won’t go wrong owning this. If you want an operator and get some leverage to the upside, buy when sentiment is negative, and Goldcorp is clearly the name. If you just want a safe, stable name on the price of gold, then Franco Nevada (FNV-T) is the right way to deal.

Canadian Banks share splits? Share splits are an interesting academic exercise. It typically occurs after a stock has moved, and they just want to make the shares more appealing to small investors. Feels share splits are meaningful in that suddenly more demand occurs.

Market. Investors seem to be wisely ignoring the melodrama of the Trump presidency. Clearly, the US has any number of plans for taking action against North Korea. There is one big issue for China, a huge refugee problem of 25-30 million refugees. It will also make the Japanese very nervous. One way or another the US is going to have to put a line in the sand, and it is probably not too far off. This would be a major, military mover of the market. He is normally and has been for the last 8 years, overweight the US. Probably 35% of his total portfolios is US equities, and about 20% Canadian. He is starting to take a look at the Canadian market, which is more undervalued.

High income ETFs? There are a few, basically junk bonds, such as iShares US High-Yield Bond Index (XHY-T) or BMO high-yield corporate Bond US Hedge to CAD (ZHY-T). You have to remember that they are junk bonds. They are higher yields, but don’t be too heavy in them. If he is going to have 5% on an ETF high-yield bond, he would rather have Covered Calls on Canadian banks.

How far out do you go when writing Calls on bank stocks?Normally when he does this, he is buying the stock in order to write the Calls. If he has stocks that he has held for a long time that has big capital gains, he is not going to write options, because he doesn’t want to get caught with capital gains for the sake of a couple of dollars of option premium. There is no point gaining 5% if you’re losing 25%. He tends to write stocks at the money, or as close as he can, and 6 months out. This is because it has cheaper trading costs, and his clients can understand it better if they see just one move instead of selling it out every 2 months, etc. You have to be careful when trading options to never let things expire on the expiry date. He buys them back.