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

US Banks. (Market Call Minute) JPM & GS are ones he likes. WFC-N is fine if you don’t think there are any more skeletons in the closet.

Canadian Dollar. (Market Call Minute) It is probably fully valued. It went up 10% in a short period of time and he thinks it will go back to $0.76 by year end.

Markets. We are not expecting to get a statement on central banks unwinding quantitative easing, but rather tightening. We are expecting to hear, however, how they are planning to unwind their balance sheets in the future. The markets are starting to respond to some of these negatives. Japan has a deeply struggling economy. They are buying equities and bonds. He thinks we are heading down the path of what Japan has had to do. This is playing out over decades. It has to do with the aging demographic. Bannon out of the Whitehouse: he was the worst part of the election process. It bought all the worst to the surface including hate. He is not sure it will fix anything, but it is a step in the right direction.

Smart ETFs. In the BMO world they have two niche areas. (1) Low volatility, low beta. (2) A couple of years they got into the quality factor space. When you pay a fee you expect them to pick the best quality companies.

Markets. He is still waiting for the inevitable correction. At some point stocks have to fall. He cannot tell you when, but eventually it has to happen. He is still heavy in cash. The mini corrections simply bring in more buying people. He may be early, but it is going to happen. With the politics in Washington it would be surprising if they got anything done. Not much is going to happen. He observed that recessions don’t normally happen when commodity prices are low.

Cash. You need to hold cash because we are in for some choppy trading. The commodity space is unloved and overlooked.

A Correction. Volatility is at an all time high in the US. We get corrections all the time. He has never said we are going to have a 30-40% bear market, however last year from 2015 highs to lows in 2016, small caps were down 20% in the US so that is a pretty material correction. We have not had a broad correction in a long time. Calling a top is hard and he never does that. He says he is concerned and it is time to shift the portfolio to more defensive stocks, and ETFs that use covered call strategies. It is about asset allocation and sector diversification. Nobody knows when the top is in. He does not like what he sees over the next couple of years and so is defensive in the way he runs his portfolios.

Pipeline ETFs. His favourite way to play utilities is ZWU-T, 80% Canada and 20% US. It has generators, telecoms and pipelines. It has a covered call overlay, enhancing the yield. It is very diversified over the couple of sectors. He prefers this to picking individual pipelines.

Educational Segment. Financial Astrology. A study that went back to look for correlation between solar eclipses and stock market performance said that there is none. There are all kinds of financial astrologers. One newsletter makes market calls off astrology and he does not give it weight. There are all kinds of academic studies. The more sun there is the better markets do. There is correlation, but not causation. That is the ultimate question. There is a guy who correlates full moons to markets with the idea of disproving any and correlation he could not disprove it. Gold tends to either change or accelerate in a full moon. He recommends you don’t pay attention to it. Markets like wheat and corn are influenced by weather which is influenced by tides and those by the moon, so you have to be careful of that.

Markets. We are in the summer doldrums and the market is trending little lower. He does not do any shorting. He is in 20% cash for all portfolios. September/October tends to be when you get a hiccup and if it falls far enough he may pull the trigger and spend some of that cash. PE multiples are using adjusted rather than GAAP earnings. You are getting the aging demographic that aren’t spending as much money, companies doing a good job of cost cutting, which is deflationary, so you can’t expect the old rate of GDP growth. The market has rallied for 8 years because interest rates have never been this low for this long. The market could go sideways for 10 to 20 years. We don’t have to have a correction.

Markets. The chaos in Washington does nothing for him in terms of investing. Both Obama and Trump had legislative gridlock. A lot of what Trump has talked about has done nothing financially because congress has not wanted to play along. He keeps waiting for ‘this great correction’ to happen in the US. Valuations have gotten out of hand. While the DOW has been hitting new highs, it has been because of AAPL-Q and BA-N. If you look at an equal weight index, it has been going down. The Canadian economy is probably one of the best in the world, but because our market is mostly financials and resource/materials, it has been one of the worst in the world. The rising dollar has taken away any foreign gains you had and the rise in interest rates has taken from your fixed income investments. Canadian investors have the worst of all worlds.

Markets. We are in the most volatile time of year for the equity markets. It is a slower time of year and economic activity is diminished. The headlines are affecting it as we are past the earnings season. The new season is turning out to be very volatile. North Korea is nothing new either, but investors are grasping onto that because there is nothing else. From a technical perspective we are seeing cracks in the longer term S&P. We broke a rising trend line yesterday. From a low in July we tend to see the VIX rise and it causes erratic trading activity in the market. Opportunities to buy are created if you want to add to your portfolio. We dipped below the rising trend line that was supporting markets in the S&P. Investors are becoming risk adverse. Breadth and momentum are decreasing. Gold is the classic volatility play. You tend to see a rise through to October. This year we are bumping to resistance about $1300. We cracked it today. It just takes a number of cracks to make it break all together.

Nat Gas projections. The period of season strength is September through to December. We have seen below average demand in the summer because it has not been a very hot summer. There has not been that consumption that can lift prices higher. We have a head and shoulders pattern this year. Support is about $2.64. If you get a break on that you see a dip of significant magnitude ($1.50). He has not seen a bearish pattern play out to that magnitude. We are expecting a colder than average winter. We still have lots of time to watch it. Just sit tight for now.

S&P – where is the support level? We don’t have the setting for a dramatic sell off. It will be an orderly sell off of 5-10%.

Markets. It is pretty quiet and he has been down to 3/4ths staff some days. Trading volumes in the markets are down these days. The repatriation of cash may now not happen and that is pressuring the S&P. Year to date the US is up but in CAD$ really it is not. Canadian markets are flat also. Banks look attractive. Energy is cheap, but you have to believe in the price. The rest of the Canadian market is actually up. Canada is not as cheap as it appears and you have to be a stock picker.