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

Gold? What is going on now is really interesting and thinks it is going to change the view on the US$, and a lot of people’s view on oil. The Shanghai Stock exchange is testing an oil contract and a gold contract. There are 4 countries globally that are selling oil in Chinese Renminbi, and Russia is one of them. Thinks the US wants to punish Russia, because they are not selling oil in US$s anymore. Companies that do this can turn around and convert the Renminbi into gold. Feels both gold and oil are falling in recognition of this. If so, this means we are going to settle oil now in gold, as opposed to US dollars.

Market. Mid-July to mid-October tends to be weak for stock markets. Historically, right around July 19^th, markets move lower through until the middle of October. Also, volatility starts to move higher. What happens in the summer is that you get slower volume. Every year for the past 20 years there is something unusual that happens. Volatility is not there yet, which implies that the big correction he expects has yet to come. Once the VIX starts to move higher, that is when you get the real correction.

Gold. Historically, when volatility starts to increase, then gold stocks and gold goes higher. Historically, gold and gold stocks bond right around the 3^rd week in July, and then go higher right through until at least the end of September. This year, since July 19, gold and gold stocks have bottomed and have started to go higher. (See Top Picks.)

Markets. The world is nice and quiet these days. Last year we had BREXIT, The Greek Blowup and the US Election. In the next 3 or 4 months there really is nothing there. We have global synchronization. Global growth is at 3%. Earnings are popping up. We are going back to normalization of interest rates. We had emergency lending rates in North America until now. In a 10 year bond we should get to 2.5% and we are at 2%. The interest rates affects REITs greatly. He has not made returns in the last 6 months. You are worried about tenants surviving. He focuses on investment grade bonds for fixed income. It is challenging to find great value out there.

REITs and Interest Rates. Interest rates should not have any impact because they are also small, but in fact they do from a sentiment point of view. Retail is really being challenged. Landlords will have trouble renting out these spots. Office is good in most pockets except Calgary. Apartments are geographically specific. Industrial REITs are good. Amazon needs storage and logistics.

Bank or Lifeco Recommendation. He leans toward the banks for an interest rate play. TD-T and RY-T are the best in class. More than 50% of TD-T’s assets are in the US. They are cheap relative to Canada and there is room to run.

Market. Tech stocks are showing some weakness, and it is probably a decent opportunity to buy some. Some would say it is a crowded trade, but the reality is that we have a very slow growth world. The US just came out with their economic growth, and the 2^nd quarter was 2.6%, well away from the 4% that Trump was promising. In a very slow growth world, companies that can post 30%-40%, and some cases more, are going to be prized. The FANG stocks are really unique monopoly companies. For most of them, their growth rate and the run rate is pretty unlimited at this point.

Market. In general, you are going to see more volatility in the small and mid-cap space, but this earning’s season has been a pretty strong one and there has been a lot of movement. Those smaller companies are nice because, since they are growing from a smaller base, they don’t necessarily need as large a contract to get a boost to the bottom line. He believes in diversification, but if he were going to choose sectors he would want to be light on it would be the energy and materials. Those are sectors where companies have no control over the price.

Market. Central Banks are in no hurry to see interest rates climbing. They are going to remain data dependent. Large central banks tend to target inflation. Canada was one of the first Central Banks to use monetary policy to target inflation. What they are really trying to do is create price stability and sustained economic growth, not choke it off. Despite the fact that they may want to increase and normalize rates, the reality is that if they do it too quickly, economic growth probably slows down very significantly. He thinks they are going to remain data dependent, which broadly supports maintaining overweight exposure in equities, and even maintaining some fixed income exposure, because one of the absurd things that has happened this year is that volatility is a very low. You are going to need that fixed income exposure in the event that volatility increases.

Should Canadians be investing in Canada? For any Canadian investor that is looking at the TSX as their benchmark, there are obviously flaws with it and it is heavily exposed financials, materials and energy. Having a little bit of diversification outside of Canada gives an opportunity to complement your Canadian exposure with sectors like healthcare and technology. Use the stronger Cdn$ to increase your US exposure, and it will be great from a diversification standpoint.

Junior energy service companies? His view is that oil prices are going to remain relatively range bound. If you are going to buy some junior energy service companies, you are better off buying a basket of them and probably maintaining a relatively low concentration within your overall portfolio.

Energy. He is invested in energy infrastructure companies versus producers, because he thinks commodity prices are going to remain range bound. Also, thinks you are going to see a bit of an increase in oil and gas production in North America. All of a sudden US shale producers have become the swing producers. If you are invested in energy infrastructure, you should generate very substantial dividends and very good free cash flow.

Market. Fully believes in the US market at the moment, with these highly profitable, high growing Internet companies. The shift in the economy occurs occasionally, and we are in the middle of one. There is $200 billion in advertising still to move from TV to the Internet. Google (GOOGL-Q) and Facebook (FB-Q) are going to get 99% of that. His portfolio right now has about 70% US, 10% largely Britain, but with some Germany and 20% Canadian.

Cdn$ outlook for the next 3 months? Our trade is tied to oil, and the outlook for oil is weak to flat, at best. The Cdn$ has been in a big roll, recovering from $.72 at the bottom of the mortgage crisis. Expects that is because of Short covering from US investors. Thinks the Cdn$ is heading back to the mid-$.70.

Market. We are in a kind of Goldilocks environment in that there is slow economic growth. The one problem is that central banks are inclined to be raising rates. It has been a while since we have had a correction, and that could be the catalyst for our first 5% correction for some time. The US and Chinese economies are growing probably as strong as they have for a year or 2. That gives central banks the ability to start to slowly taper back to a tighter monetary policy. There are certain areas of the market that are being left behind because of the craze over ETF’s that are flooding their market into a smaller and smaller cadre of really big large cap companies that are leading the market. There is a lot of stuff getting left behind, and there is a lot of value there. It shows up in terms of takeover activity.