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

How do you evaluate an opportunity? Looking at Tech stocks: The customer has to like the product. The company should be continually gaining market share over the years. Then they can continuously grow. [Rohinton] A finance stock has to give you comfort over the downside. You have to look through the balance sheet to understand the risks. Then he looks at the upside. [Groff] Avoiding losses is important, especially when markets are hitting new highs and there is complacency.

Canadian Bank Splits. Don’t worry about splits. Today we are at a 25 year high in consumer credit in Canada and banks are at an all time high. A US footprint is a good ideas but looking at US banks directly is even better.

Insurance Companies US and Canada. Long term they are a great business. Intact (IFC-T) is a great business in Canada with a good management team. Chub (CB-N) is excellent, but focus on these two primary insurers and stay away from reinsurance companies because it has been commoditized. Climate change adds more volatility to the industry.

Market - There hasn’t been a lot of volatility. We are through the meat of the Seasonal period where we sort of expect some hiccups. The VIX, being as low as it is, has been pretty darn low for quite awhile. That said, even in early November we are susceptible to a couple of spasms, due to some geopolitical or North American political issue. The economics and the general structure of the market, being very pro-growth is pretty positive. He sees this for the next 6 months. The chart for bond yields (IEF-N) shows a bit of a break, but generally there is a trend moving up.

Market. We are just stepping into the time where stocks do well over the next 6 months. They’ve done well over the last 6 months also, but can still do well. The new highs on the TSX, S&P 500, NASDAQ and the Dow today is a bullish signal. There has been an underpinning of some key sectors in the market. Technology has led the market for so long, and continues to do well, that is a good sign for the market. We’ve also seen support from the financials. If financials participate in a rally, that is a good thing, because it is showing we are perceiving the economy as doing well. However, energy and materials are still down at around 9% from the previous peak, but there’s still time for them to participate. The TSX has done well versus the US, over the last couple of months, but from this time in October and into November and December, it is usually the US that does well, about 73% of the time from 1950 to 2016. That is because of the sectors. Oil tends not to do well in Nov/Dec and gold tends to be weak in October.

Market.The TSX got back to where we were in February. If it breaks out from here, it could show some Run. We have enough underlying factors, particularly if oils start to react. A lot of the oil stocks are trading well under their BV, and he could see oil at $60. Banks are doing OK. We could hit some good territory.

Market. There will be opportunities to deploy cash at lower values. There is complacency and at an inflection point in the way central banks are going with interest rates. After this 8 to 9 year experiment of near zero interest rates he is watching how bond and equity markets react. Things are priced to perfection. You have to look hard to find opportunities. There is also the option of waiting for things to pull back in general. A pull back in markets would give people an opportunity to get in with cash on the sidelines. We are in the 8^th or 9^th inning in the bull market.

Market.The market cares about earnings, not government policy. The numbers have been consistently good, whether they are earnings or economic numbers. Factory orders were incredibly good. Also, the housing market is starting to pick up. Earnings are good because the world economy is in unison. All the major economies are presently charging forward. There are still cheap stocks out there to buy.

Hold a stock until the X dividend date, Sell and move into another stock, and do the same thing again?This has been done by some institutional investors, but it is tough to make it work. Once a stock goes X-dividend, it knocks the stock price down by the amount of the dividend, so you really didn’t get anywhere. Not a strategy he would pursue.

Canadian Market. He can see upside, but expects it will be a grind higher over the next 6 months. There will be periods of volatility, primarily driven by geopolitical types of events such as NAFTA and North Korea. On the pullbacks, they should be treated as opportunities to look at buying select stocks in specific sectors. Favours economically sensitive stocks. The recent GDP numbers indicate we are starting to see growth, which will continue to be revised both in Canada and the US. He is going into more cyclical types of stocks that can maybe benefit from the increased pickup in GDP in infrastructure spending. We are getting to the later stages of what has been a pretty good overall rally, and as such, generally in the later stages, we will see some cyclical outperformance, and that is where he is trying to place clients’ money. Moving some money out of the US and into Europe, where he is seeing some opportunities. He’ll do this through ETF’s and other types of instruments.

Inflation and Raising Interest Rates. The Bank of Canada has been talking about recovery and strength but we haven’t seen any real inflation yet. Unless they can maintain the momentum of the current recovery he doesn’t believe they will be in too much of a hurry to raise interest rates.

Impact of Interest Rates on the Financial Sector. There is already a little bit of expectation built on the price of interest-sensitive stocks. He is not too worried. A lot of those stocks have fairly good yields, and if we don’t see interest rates rise on the fixed income side, people are going to stay on the equity side. Also we’ve seen the banks investing a lot into IT lately, so don't be surprised to see some cost cutting coming down the road on that side. We could see some efficiency gains and cost-cutting that would offset the lack of growth on net interest margins.

Consumer Staples or Discretionary? He prefers staples, we’re seeing some sign of distress in the discretionary sector, particularly, retail is struggling right now not knowing what impacts the technological changes happening in the sector are going to have. You’re less vulnerable with consumer staples, although they have their own problems, notably, wage increases coming in in Ontario and other provinces.

Market. From a PE multiple the stock market is at its highest since we have seen since from the last 5, 10, 15, and even 20-year periods. Relative to where interest rates are, where inflation is, where bond yields are, where else are you going to go? We are definitely in a healthier situation than in 2006 from the banks standpoint, and we don’t have a housing bubble, so the underlying macro environment looks pretty good. Historically, relative to interest rates and inflation, stock still look to be attractive.

How to be positioned if US tax reform goes through or not? The chatter is getting louder. Maybe they don’t pass the entire reform they want, but there are some easy things they can do. It is no secret that between technology and health care, there are trillions of dollars in cash sitting offshore, that if repatriated to the US would get hit with a 35% corporate tax rate. If there is some reform, that is low hanging fruit where cash can be returned to shareholders in the US in a very easy way. That would help tech and healthcare. The other big issue is, what is going to be the corporate tax rate. Coming into the year, stocks rallied hard on the prospects of a lower corporate tax rate. Some investors and analysts are baking in a 15% corporate tax rate, while others said 20%-25%. Doesn’t think there is going to be a massive market selloff if it doesn’t happen. Either way, you should have a diversified portfolio with some bonds in your portfolio. If there is some unforeseen event, you need that to protect your downside.