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

Gold. Gold shares haven’t done much. We’ve been seeing higher lows and higher highs, so we may be in a bit of an up channel. The trend is positive. He would recommend you have some gold in your portfolio. Has 5% of client’s portfolios in gold stocks. As the US$ continues to weaken with euro strength, gold could go up with an upward bias. It would be great to see it break $1300.

Cdn$? A lower Cdn$ historically has been good for Canada, particularly in manufacturing and resources. It makes energy producers and mining companies that much more profitable, because they sell products in the US$. It used to be much more beneficial when we had a manufacturing economy, but we no longer have the manufacturing strength that we used to, and that is going to be a headwind going forward.

Market. We have a roaring economy, but a mismatch on the TSX. The bigger surprise is the roaring Canadian economy doing almost twice the rate that the US is on GDP growth. The Canadian market seems to be dogged by some combination of oil, NAFTA and housing fears. There is not too much fundamental basis for any of them, which creates opportunities. The bearish headlines have pretty much played out. We’ve gone down from the $55 level to the low $40s. It seems to be pretty good support here. Longs to Shorts reached a capitulation type level, the same level as they reached in February and August 2016, and there were pretty good rallies off of those levels. He is still somewhat concerned about the prospect for inflation with the economy at full employment and potential stimulus.

Cdn$? With the Bank of Canada speaking hawkishly for the 1^st time in quite some time, people didn’t really have that in their forecast. Thinks oil prices are at the low end of their trading range and should start to drift back up. If the Bank of Canada starts to normalize interest rates in combination with the Fed, that could provide some upside to the Cdn$. He wouldn’t go wild on this, because he doesn’t think it is going above $.80.

Banks or lifecos? He likes the banks for the long-term. If you look at the long-term total returns on the banks, they are 2%-3% higher annualized. Both have done well. Also, there is more volatility in the lifecos. He likes the banks at their current levels.

Markets. An Italian bank is purchasing for one Euro two Italian regional lenders that were being bailed out, and are now being wound up. This is the continuation of ‘too big to fail’. The government is not doing a good enough job of regulating the banks there. This is going to be troubling for decades to come. If interest rates go up marginally, you see purchasing coming down. At the end of the day, fixed income is a safe place to put your money. There are doubts that Trump can ever cut corporate tax rates all the way to 15%. This will affect small cap US stocks, which would have benefited tremendously from a big tax cut. That makes the Russell 2000 index the most expensive in the world, so he is short that index.

Educational Segment. Robots. A lot of boring jobs were replaced by computers and so a lot of jobs have gone away. Amazon is breaking every space. They could have cost a million jobs by now. They are only going to get bigger and bigger in this space. He feels there will be social problems coming. From the mid-70s to today, the bottom 50% of people have seen no real growth in their incomes. The next 40% have seen only a marginal growth. The top 10% are all doing well. BOTZ-Q and ROBO-Q are ETFs for robots and they have outperformed the world. He will love them once we get a market correction.

Markets. Stocks aren’t cheap, but where else are investors going to invest. It is more and more of a stock picker’s market. It will be tough for Trump to accelerate US growth to 4%. Canada is doing far better. Stimulus spending and tax cuts are temporary. We are probably in low inflation for the rest of our lives. There is a lot of government debt. There is too much stuff in the world and not enough people to buy it all. He feels tech specialty companies are the way to go. We are running out of tech names in Canada, however.

Fixed income is very tough. You are earning next to nothing on government bonds. He focuses on high yield, but keeps getting the companies redeeming them early. He was picking away on beaten up preferred shares. He suggests keeping your duration very short.

Market. A number of consumer sentiment indicators along with other broad indicators, peaked about a month ago and have pulled back slightly. Someone suggested that they have in fact peaked and are now in for a decline, a forerunner of a major economic slowdown, followed by a recession. If this is the case, you could look for a 5%-10% market correction. Given the severity of the recession in 2007-2008 and given debt levels, the recovery is going to take quite a bit longer than normal. He thinks we have another couple of years of 2% growth plus/minus, which is disappointing. However, he expects these pullbacks will be nothing more than short-term blips.

Royalty companies, large cap golds or intermediate golds over the next 3 years? If he had to own a gold security, it would be Central Fund (CAF.A-T) or a Gold bullion fund. Over the next 3-10 years, a number of things will happen. First of all, it is insurance against a major disaster. Secondly, inflation is not a factor right now, but should it reignite, this gives you some insurance. Finally, there is going to be a day of reckoning because a lot of companies will not be able to meet their pension fund liabilities, and there could be quite an upset in International circles and gold is a protection against that. If he had to pick 2 companies, the 1^st would be Goldcorp (G-T) and the 2^nd would be Agnico-Eagle (AEM-T).

Sectors you would avoid? Very early he learned to avoid commodity stocks. Doesn’t think the world needs another hamburger stand or fast food outlet. He has never liked airlines, because they are always subject to uncertainties and price wars. On the other hand, US defence stocks are a natural, and he has looked at General Dynamics (GD-N), Huntington Ingalls (HII-N) for space weapons and defence and Raytheon (RTN-N).

A robotics stock for growth? He doesn’t own any at this time. One that he does favour is an ETF Robo-Global and Automation (ROBO-Q). He likes that it has 35 or 40 different robotic companies, but most of them are Japanese or foreign. He likes Rockwell Automation (ROK-N), but it is just a tad too high. If this had a 5% pullback, he would be buying it big time.

Market. The US market is extremely overvalued. On a Price to Sales basis, it is more expensive than it was in 2000. That tells us that there is not a lot of expected return from here. He is not saying equities over the long-term can’t be good investments, but when you are entering at a point of such extreme overvaluation, like we are now, it is best to wait. Every 10 years there is at least one 30% drop-down in stocks, and we are now approaching 10 years in this bull market, and there hasn’t been much of a drawdown so far. We are well overdue for one. The extraordinary debt bubble that has been created since 2000, never really was sold. Debt to GDP ratios are extremely elevated. When that starts to unwind and we get to the other side of the credit cycle and liquidity is no longer being created into the economy, that is when you will see the big decline in equities. Any Long positions he has are special situations. He has a lot of Short positions.

Market. The market has been a bit of a disappointment this year. When both financials and energy are a little weak in the knees, the market doesn’t do much. We have probably seen a bottom in the banks at this point. There is a misunderstanding or lack of knowledge in the US of how Canadian banking works. We are in a low interest rate environment for the foreseeable future. Doesn’t see a recession coming again, but we need to see a period of drift down of 5%-10% with some stability coming in.