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

Educational Segment. (weekly series) What Investor Personality Are You?: 1. The Accumulator. They have a confidence bias in what they do, but make common mistakes in investing because they believe they can control the outcome of the markets. If you are a growth investor and focused on maximizing returns, you have to be aware you will have challenges. E.g. AMZN-Q. A compounded return of 37.5%. When you look at all the ups and downs, look at the amounts. You have to assume more volatility during corrections. You have to ask if it is appreciate for you as an investor. You have to be willing to sit tight every couple of years with a 30-50% correction. You can’t get in and out repeatedly. You have to understand what your emotional response will be.

Markets. We have a booming economy, but the stock market is still in the red. The rest of the G7 are all in the black. We are expected to have the second strongest growth next year. It is all a play on oil. Italy has the weakest GDP growth. You should not make investments based on GDP expectations. Canadian banks are expensive, but broader opportunities are emerging. There is some value there, but now the energy sector has come up. We have too little of what has been good and too much of what has been bad. GOOGL-Q is expected to cross the $100 Billion level in revenue, but it is still growing in the double digits.

NAFTA and the Auto Sector. The integration of the auto industry between countries means it is unlikely there will be changes in the auto industry due to NAFTA negotiations. MG-T and LNR-T have recovered nicely since the election. Auto sales have peaked in North America so these stocks should remain range bound in this area for now.

Infrastructure companies in light of Hurricanes. He thinks immediately of BAM.A-T. Their business model continues to benefit from institutional asset managers wanting to own something better than fixed income. You get to own toll facilities. As their fees grow, the stock goes up. It is diversified.

Market. A lot of people didn’t think the interest raise in Canada was going to happen last week. They expected it to happen in October. As to relative performance in Canada versus the US, Canada is in the middle of the pack and is definitely not an outperformer, so a lot of people were caught off side. Given the strong Cdn$, that is really going to hurt exporters. The US is near full employment and getting to the point where we will see some wage inflation, and the Canadian economy has quite a bit of slack in it. One of the healthiest places to invest in right now is Korea.

Market. September is the weakest month for stocks globally. The first 5 trading days this month have all been on the downside. On a seasonality basis, the market drops dramatically, and then tends to pull up around the middle of October. Every year, something unusual happens between the middle of June and mid-October, which causes volatility in the markets. Last year it was BREXIT and the previous year was China. 2008 was a world financial crisis. The VIX, at this time of year, from July right through until the middle of October, has a strong period of seasonal volatility. This year there have been several little spikes along the way, but hasn’t shown up strongly this year. What could be the spike this year? It could be North Korea, a couple of hurricanes in the Gulf, problems with Trump getting his agenda through Congress. There are all kinds of things happening in the next few weeks, which could trigger that scenario. Prior to the release of 3^rd quarter results, analysts historically have been overly optimistic with their estimates in the 1^st half. When it gets to September, they rethink and decide to pull the numbers back a little, which causes markets to come under pressure. Right around the middle of October through to the end of the year, the economically sensitive areas get particularly strong. Also, historically the months of January and into early February have been some of the weaker ones for the year.

Oil? Crude oil has a period of seasonal strength from late January right through until May of each year, and does extend into September, but from September through until January it tends to move lower. The time to play crude oil is in the spring. Technically, it is getting close to a longer-term support level, but is still in a downward trend.

What sector should I be in now, and what is the next sector we are rotating into? Gold and gold equities still look very good. There are also gassy stocks (see Top Picks). A sector that is starting to show some promise after a big move on the downside, is agriculture. These are very short seasonal trades. The big moves for seasonality comes around the middle of October, when sectors that are economically sensitive really start to click in.

Market. We have rising interest rates. Economic numbers have been outstanding, certainly better than he ever thought they would be. A little dubious they are going to continue, but in the light of 4.5% growth, which we haven’t seen for a decade, he is not surprised that the Bank decided to raise interest rates. We are back to 1%. The economy going forward has seemed to force the Bank of Canada’s hand. This hasn’t had an effect on the TSX. People seem to be worried about all sorts of other things such as hydrogen bombs, NAFTA, and perhaps what is going to happen with hurricanes. When people are on edge, they tend to go to cash, gold, or just away from markets entirely. From a technical standpoint, 15,000 on the TSX seems to be a resistance level. At that level, if you are interested in buying banks, that is not a bad level.

Marijuana stocks? Has not bought any. We are very early on in a brand-new area, and there are a whole bunch of those stocks out there that are not going to be there 6-9 months from now. There are a lot of risks. Even the ETF has had a 20% decline. We just have to wait and let this whole business settle out.

Cdn$ versus the US$? Before going into the US$, he would wait a little, but sometime relatively soon, as soon as it becomes clear that the federal reserve raises rates again, he thinks the US$ will strengthen up. When the Cdn$ gets to $.83 and looks a little toppy, that would be the time to buy the US$.

An ETF to play the banks? He doesn’t tend to invest in ETF’s for banks. Prefers Toronto Dominion (TD-T), Bank of Nova Scotia (BNS-T) and Bank of Montréal (BMO-T). Bank of Montréal has been a bit of a disappointment, and he may trade it off. If you want an ETF, BMO has a couple, the Equal Weight Bank (ZEB-T), and the Covered Call (ZWB-T). The covered call has been fairly reasonable. The yield on the latter is actually better than what you are going to get just on dividends. However, if the banks decide to take off, that part of your equation doesn’t work out, in fact you probably underperform.

Markets. We are coming off two emergency cuts in interest rates. The Canadian dollar keeps getting stronger and it acts as a headwind to the economy. The CAD$ has appreciated about 11% from its lows. There are oil companies selling out of the oil sands. Some Canadian companies have the ability to grow their dividends, so not all dividend companies are created equal. If you can grow higher than the rate of inflation then you have a good Dividend. Canadian banks had a good run from their lows. It may attract global investors. Toronto and Vancouver housing markets are markets unto themselves. No other country has ever engineered a soft landing. Job creation is about small businesses. Our unemployment rate is higher than the US.

Market. The market has done so well in real estate, bonds and stocks with interest rates trading at record low levels that it begs the question that if interest rates rise, it doesn’t sound like it isn’t going to be good for a lot of things. Investors need to take a hard look at some of the things that have done well, like pipeline and utilities. Those sectors are not going to perform well if rates keep going up. Things like REITs are probably going to suffer some pain. The Fed governors expect the short-term rate will be 3% in 3 years time. That is a big jump from today. If that happens, that suggests that 5-10 year bond yields will be somewhere between 4% and 5%, which means mortgage rates take a big jump. It is going to impact corporate capital allocation in terms of share buybacks and the like.

Market. Doesn’t believe this is a cheap stock market currently. He is holding cash and is very defensive. There is a lot of political noise, and is not something he spends an enormous amount of time on.