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

Weed stock portfolio or an ETF of weed stocks? If you are diversified across 18 companies, they can’t all be winners. Be careful of trading costs as they may have wide bid/ask spreads so you pay a higher price to buy or get a lower price when you sell. If you sell everything and then buy the ETF, it could result in spread costs in both halves of the transaction. Do it over time, or wait for the ETF to build scale so the spreads come in.

Emerging markets are risky. They are so correlated to resources. If you have Canadian securities in your portfolio then only get a small exposure to emerging markets.

Markets. BREXIT does not make much difference to the way he analyses investments. If a company has a fair amount of their business in the UK then that may have an impact. The failed healthcare bill brought into question Trump’s ability to change other things. He combines fundamental and technical analysis. He is max weighted in equities right now. Whether this [US] market has legs remains to be seen. He remains skeptical in further advancements in the TSX just because of the composition of it. He would not be shocked to see oil prices test lows.

Markets. Everyone was euphoric when Trump got a majority republican congress. The market has now spent 24 hours worrying about healthcare. There would probably be a good mandate to see lower corporate tax rates. Now he can allow companies to grow more without needless US regulation. Earnings are string to bubble upward. The market is not that expensive. We need to see lower tax rates and deregulation, but we are now a lot less confident in a clear agenda. World economics are strong enough now to drive stock prices upward. Unemployment is dropping. The Fed is raising rates. We are seeing growth spurts from Japan and growth numbers in Europe. Greece seems not to be an issue. Canada is a proxy for global growth.

Canadian banks. They are expensive based on book value. 10 years from now, they will probably double. Europe has some incredibly cheap banks so it would be a good idea to move some money from Canadian banks to Europe for diversification purposes.

Markets. There is a lot of negative sentiment in oil. The lack of visibility of what OPEC has done and how it has fed into inventories is what is causing nervousness out there. She is confident that OPEC’s actions will work. With production increasing in the US, it is being balanced by cuts that OPEC has made. We won’t get a lot of growth in oil in the US next year if the price does not increase. She looks for companies that have the best growth and the best plays. There is a valuation gap between the US and Canada that makes Canada much more attractive. A border tax into the US will increase the price of oil in the US and thereby encourage production growth there.

Markets. The sentiment on the street regarding the failure to launch the repeal of the health care act is that the tax changes will also be tough. The big interest is in the mid-term election in 2018. If it is not attached to a budget then nothing is going to get done. The most logical thing is for the market to sell off to where it was before the Trump election. This morning there are dip buyers coming in. He thinks through April we will continue to drift lower to where we were before the Trump election. It is the physiology about how markets work. You have to test the confidence. He did not adjust positions on Friday because he expected it to fail. There is major execution risk with Trump policy.

Educational Segment. It is the 10^th year anniversary of the show. He often gets the comment that he is always bearish. But he thinks he is optimistic. He looks at the risk side before the returns side of investing. Beta is the sensitivity to the market risk. When he is considering buying anything he thinks about the risk index. ZEB-T graph compared to the world index looked at the weekly return and then he finds the trend. The slope of .65 tells him the sensitivity to the world index. At this level about 50% is related to sector risk. He decides how much of the decision relates to the world, or to sector or to the specific stock. XEG-T is the Canadian energy sector, compared to the world it is more sloped, meaning it is more risky. He needs to weigh the macro factors more in this case. SU-T has a lower correlation to the energy sector because there is less risk and that is because of their refining business. Energy is starting to look interesting now.

Markets. We had a great big rally on anticipation of change. The changes are going to take longer to implement than we thought. It is time for the markets to sit back and pause a bit. Going into first quarter earnings season, earnings and interest rates are the two drivers. The US will continue to be the natural ‘go-to’ place.

Markets. He is not concerned about the health care repeal not going through. Stock markets are bullish when legislation is in gridlock. Patience will pay off with other Trump initiatives. There is literally no volatility in the market. Investing in this climate for him is no different than any other climate. A company that is a good investment should not require any particular macro outcome, although it is important to know what could break the investment hypothesis. He picks stocks bottom up, but worries top down.

Why don’t oil producing countries cut production to get the price of oil up? Most OPEC countries over produce to try to reach their budgets. OPEC is not in a position to rebalance the market. There is a lot of production inshore and off shore in the US (the Gulf). There are a significant number of projects that are ramping up.

Housing prices. Historically to break housing prices, you need a spike in unemployment. He does not know when this will happen. There is only a small chance of recession in the US. CMHC has published concerns about the housing market.

Markets. Everyone wants to call an end to this run. We still have an accommodative federal reserve. Stocks are not cheap, but still so much cheaper than 10 year bonds and cheaper than real estate. People are still so nervous of the small or big gains they have had. People need dividend stocks. He does not see a high interest rate environment. Dividends are a staple in people’s portfolios.

How much to keep in Cash? [Caller had two of four kids in University]. You want to be mathematical about this. When these liabilities become certain you want to invest in things that cannot fall down. It depends on your temperament.

Markets. This Monday the Americans may give the green light to the XL pipeline. Oil stocks are still discounting this news. There is a backdrop of international oil companies exiting Canada. Playing XL can only be done through TRP-T and so on and companies that piggy back off them. He thinks we will see $60 oil this year. Any week we will see refineries coming back online that are undergoing maintenance. The market will still be rebalancing in Q3 of this year.