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

Market. He is seeing a divergence between hard and soft data. Soft data often reflects sentiment or intentions, rather than action. For example, people are interested in purchasing things, but they are not purchasing things. Just because earnings are coming in line or potentially beating expectations, that doesn’t necessarily mean that stocks are cheap, it just means companies are setting analysts up properly to beat their earnings. Oil is an area where the hard data suggests that the market is tightening much more than some industrialists are suggesting. If interest rates were to continue much higher, that will put the brakes on equities, specifically overnight rates in the US. The greatest opportunities lie in companies that are free cash flow focused. Free cash is what can sustain a company over business cycles.

The difference between dividend stocks and growth stocks? There is a very big difference, and usually a very big difference in the type of investor. Dividend stocks are often favoured by retirees or tax-sheltered accounts. Implicit in growth stocks would be higher risks, so you are looking for higher reward/higher risk situations. Dividend names are usually larger blue-chip stocks.

Markets. There is not a lot of money in the US budget for a wall – it is a dumb idea. It is a metaphoric example. Congress is not willing to work with Trump on a bipartisan basis on anything he wants to do. When he wants to launch his budget it will be either the fourth quarter this year or Q1 next year, but the market is excited about it. Going into the summer months there is high risks in the markets as it is priced for perfection. We are basically at full employment in the US. He is fully hedged all his portfolios. 73 cents is the low end of the range for him and we hit that last week, although that is not to say it could not go down a little further.

Some of the most effective charts are the double tops. In the S&P 500 we have not had the confirmation when it takes out the low of the middle of the pattern. We will know sometime this summer. He is about a quarter short in his long/short strategy.

Structured Notes. Through options they can structure a product that preserves capital and gives you some upside. The cost of these products is huge. There is no free lunch. If it makes sense to you then go for it. You have to know what you are paying. It could be 5% a year.

ETF with Monthly Income. There are suites of them. He likes XTR-T and FIE-T because they give you diversification. FIE-T pays out a fixed kind of return, but there is nothing in there that pay outs that much so you are getting some of your capital back. Both products are fine. FIE-T has a big concentration in Canadian financials, so there is some concentration risk. There is no international exposure. He uses ZWE-T and ZWH-T and ZPW-T to compliment Canadian holdings in registered accounts.

Educational Segment. The Fed in their meeting will debate this week how to reduce the debt. He thinks we are in a liquidity trap. He does not think we can get back to 3% growth and they can’t raise interest rates much. Looking at quarterly GDP going back 20 years, the chart has been falling constantly for decades. The 34 quarters since the Lehman moment have seen us running at 1.5%. Interest rates first fell dramatically in 2000. The fed is thinking 3% is what we can get back to. He does not think so. The US yield curve 10 years compared to 2 years. The curve is not saying there will be a recession. Since they started raising rates the curve has been flattening, so the economy is not handling it. Look at the fed balance sheet. It has been flat since QE3 ended in 2014. The annual GDP was last growing without deficits in 2000. So the economy is very, very weak.

Markets. This is the time for active management. In a fast rising market, active managers will always underperform. It is a momentum driven market. In a gently rising or down market, active managers will outperform. Active managers can hold cash. So many managers hug the index. You have to know what your fees are. You want something with a relatively low fee. Right now the broker only has to tell you what fee they are getting out of the investment.

Buy before or after a split? Investors are enamored with them. Now retail investors are a much smaller part of the market. You don’t get stock splits like you used to. It does not matter whether you buy the shares before or after the split.

Investing in the US. You should not be 100% in Canadian stocks. Canada is just under 3% of the world’s capitalization. Because of takeovers and privatizations, the Canadian market is dominated by financials and resource stocks. He has no idea where the Canadian dollar is going, but a portion of your portfolio should be outside of Canada.

Market. The earnings’ numbers this week are looking good. People were worried about top line growth and whether it is going to come through the last several quarters. Reuters were somewhere between 7% and 9% growth coming out of the US. There is also very good top line growth coming out of Canada. EPS numbers were a little better than expected. Part of that has to do with oil companies actually making money. Even if you take out the oil companies, we are still seeing better bottom line numbers as well. Earnings’ profile expectations were dampened a little going into it, but are actually pretty good. Also, guidance going forward was not that bad. We are going through another week of many, many companies reporting this week, and he expects we will see that they are pretty good. Also, global economies are actually doing better.

Interest rates? Feels rates are going to be relatively low for a longer period of time than people think. What determines the long end of the curve (10-30 year bonds), is where inflation is. Unless you have a dramatic increase in inflation, you are not going to see interest rates go up dramatically. You are seeing a bigger issue that is happening in the global economy, where demographics, low productivity, etc. are capping the ability for an economy to grow dramatically.

Tonight's program is on taxes not stocks.

Markets. There is no shortage of things to look at in this market this week, especially in the US and that is where he is paying the most attention. All markets are saying the same thing. It is not cheap. It is tough for that to have any relevance because we are undertaking one of the most elaborate global monitory policy experiments in history. Eventually we will hit recession. It is important to be watching the economic data points. The number one geopolitical threat is NAFTA. We have to bear in mind that if there is any military activity in Asian we have to be mindful as to what the impact will be on commodities. The home Capital situation raises questions. Who takes on the risk for the home mortgage market? The banks will be very careful of taking more risk on their books. Default rates so far are very low. Banks were down in 2016 due to oil and gas loan books and we saw how that played out. He has difficulty in taking a risk in HCG-T. Some investors are shorting Canadian banks because of HCG-T risks, but he sees this as a buying opportunity. However, be careful that they are at the top of their range.

Boarder adjustment taxes. It is early days. There is a high probability of there being all kinds of negotiating tactics: Softwood lumber tariff – automotive – diary. You can’t reduce everything. If you were risk adverse, you would go toward businesses that were well insulated: businesses that are operating in the US.