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

Auto parts maker with the best dividend? There are a number of suppliers in the 2%-3% dividend range, but this is a dangerous strategy. He would not seek out auto part suppliers based upon dividend yield. These are very cyclical, capital intensive businesses, and expecting them to provide a stable source of income without considering other factors, could be a little dangerous.

Royal Bank (RY-T), Toronto Dominion (TD-T) and Bank of Nova Scotia (BNS-T) have been dropping. Why? Higher interest rates do help the banks, but on the flipside you have to be mindful of the people who are paying the interest payments. He doesn’t own any Canadian banks. With the risk/reward, there are better places to put money in Canada. Canadians have taken on too much debt. Believes the dividends are safe.

US banks? Prior to the election, these were his largest holdings. They have enormous amounts of value given where they were trading. Post the election, interest rates moved higher and they became a very consensus Long and the shares revalued substantially. He sold the vast majority of his holdings. They’ve been pulling back and are getting more interesting today.

An index fund that represents the S&P 500 in Cdn or US dollars? You can buy these in various forms, and there are all types of passive products you can buy, that mimic the index. He is an active management firm, so this is not what he does. He would rather own the companies that he believes in rather than an index.

Telecom stocks? A typical reason to own these stocks are the dividends, and he doesn’t own any. Has nothing against the model, it is really just a function of valuation. He views all these companies as just free cash flow machines. Hasn’t got comfortable with the valuations. They are well-run.

Cdn$. Canadian investors who own US stocks have had a double-digit rally since May on the loonie, so you basically had to make 10% on your US stocks to break even. Technically, the Cdn$ could get as high as $0.84. The next level of resistance is somewhere near $0.84. Now that we have broken through $0.80-$0.81, we are probably going to hit somewhere around the $0.83-$0.84 level.

Market. From a long-range perspective, the market is very healthy. However, there are signs in the near term that the market is a bit overbought. Some of those signs include market breadth, the number of participating stocks, and momentum indicators are kind of diverging. This tells him that despite the trend, which looks great from the long-term, there is potential for some of the money flow to be slowing down. Some of the market leaders are starting to consolidate and are not making new highs. We might get a little more correction on the S&P 500, probably 5%, in the next few weeks, and then we should carry on in the uptrend. He is about 40% cash with that in mind.

Gold between now and March 2018? Gold has seasonality behind it right now, between July and the late fall. It is on schedule. However, from there, there is some technical resistance that will probably come into play in the high $1300. If gold can get through that, it could be very, very strong. However, that still has to happen.

Market. The FAANG stocks Facebook, Amazon, Apple, Netflix, Microsoft and Alphabet have attracted so much attention and so much money, that valuations are in the atmosphere and only one of them pays a dividend, and are all in one narrow area of the economy, i.e., Internet marketing. If you try to hitch your star to those stocks, there could be disappointment ahead. The good news is that among the rank-and-file, there are attractive valuations and some opportunities to be had. Economics 101 tells you that when prices plummet, supply dries up. As the global economy continues to rebound, demand for energy should stay firm and prices will come back in line. This is an area for those that have acrophobia at these sites. There are 3 areas of the market that look attractive right now, financials, healthcare and international. Financials got hit hard today as the 10-year treasury retreats to some of the lowest yields of the year. However, interest rates will eventually go higher as the global economy picks up.

Energy. It is a case of oil and gas waiting. Instead of being the mainstay of the market, it is going to be the thing that follows through and makes Canada great again, but it is going to take a while because things are not moving anywhere.

Gold. With the current North Korean situation, gold is an obvious way to play this. He usually doesn’t use numbers, but if we get closer and closer and closer, we could have a price of $1700. Trump knows that the only thing that will make him great in front of the American people, is to do something that they’ve been schooled in for decades, i.e. to protect the world from a nuclear tyrant.

The best marijuana stock? He can’t give any strong guidance. There is a whole model of entrepreneurs and wannabe’s, and the regulations are really confounding everybody. He was almost interested when they produced an ETF, which he bought, which is down and dirty. Expects he will continue to lose money.

Market. From a structural point of view, when the market is a Jenga Tower, the internal supports for the market are steadily weakening as the little pieces are poked out. For instance, take the phenomena of the ETF’s. An ETF is a default position and instead of buying one thing, you buy the whole darn thing. Therefore structurally, ETF’s tend to favour the most expensive stocks, which creates a momentum in the market. Stepping back from the tower altogether is a possibility, and given the extraordinary valuations of some of the leading stocks, it probably wouldn’t be a bad thing. The problem is, when is the tower going to fall? Also, are there any investments still around that actually do make some sense and may well survive the tower? His 3 picks today, which have good balance sheets, are cheap and have good upside potential. That is the best anyone can do.

Market. There are 2 major issues facing investors. The biggest one is probably Donald Trump and the fact that he is not easily controlled. We are not getting the economic agenda we thought we were going to get. It is very disappointing. He has some really good ideas in terms of banking regulations and getting rid of regulations. He’s done quite a bit of good in some other areas in getting rid of regulations, but there has been nothing in terms of tax reform that everyone was expecting. He just can’t seem to keep his mouth shut and keeps alienating the people who he has around him. Earnings in the US have been doing just fine. Unemployment is basically zero at around 4.6%. There are a lot of companies making money.

A safe affordable ETF for a student that can grow? There are quite a number. For the US, he would look at something like iShares S&P 500 (CAD Hedged) (XSP-T) and iShares S&P/TSX Capped Comp (XIC-T). He would buy one Canadian and one US, sit on them, add to them, and forget it. As a student, you are probably putting in a couple of hundred dollars a month. A very expensive way of doing it with an ETF, because there is a transaction cost every time. The best bet is to go to your local bank. They all have Canadian Index funds and a US Index fund. Insist on only those funds that say “Index”. MER’s are usually around 85 to 90 basis points, quite reasonable, and there are no transaction costs.