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

Market. In some instances, such as banking, he prefers the US for investing. Doesn’t own any Canadian banks. US banks are cheaper and have a rising tide with the economy. Rates are going to go up more quickly, as well as having deregulation and tax cuts, etc. He is a little worried that volatility is at ultra-low levels, P/E ratios are at historic highs. The economic growth in the US is pretty good, and Canada is not quite as good. Markets are fairly, fully priced, and he has to spend his day looking for hidden gems. Buying the market broadly is not a great idea right now, given the levels we are at.

Market. We are still seeing the phenomena of a few big stocks such as Amazon, Apple and Facebook leading the market higher. That will probably continue as the power of them is absolutely solid, amazing, and overwhelming.

Market. We have hit all-time record highs in the S&P 500 and the NASDAQ. The TSX has been largely wedged in a sideways move since the beginning of the year, mostly due to energy prices struggling for most of the year and uncertainties in the housing market. US equity valuations look somewhat stretched. The S&P 500 is trading at 18X forward earnings, but in corporate earnings momentum, we have seen a very, very strong slate of corporate earnings coming out, which has kept the market propped up. We need to continue to see that through the next few quarters in order to sustain the valuation in the marketplace. Also, investors and the marketplace are very, very hopeful of tax reform and deregulation coming out of the US. From a global perspective, we are seeing a synchronized economic growth and earnings forecasts, which are trending upwards for the 1^st time since 2010, in all major regions of Europe, Asia, etc. He remains very constructive on cyclicals, which includes the financial sectors, technology, industrials, etc. Continues to be underweight defensive stocks, which would be the consumer staples, telecom type stocks. In his portfolio, he prefers dividend growers versus dividend plays. As rates start tracking upwards, you’ll see dividend payers start to move sideways. You want to see those names that can properly grow dividends over time. The VIX is showing under 10 at this time, a very low number. However, historically a low VIX does not mean markets are going to take a downturn, so he is not too concerned about that.

A defence stock? Some of the go to names would be Raytheon (RTN-N) a missile producer, Lockheed Martin (LMT-N), Northrop Grumman (NOC-N), General Dynamics (GD-N). He has always liked General Dynamics a little bit more because of its diversification. Valuations are very, very similar across the board, and you see that the returns are also very similar over the past year.

Emerging Markets ETF? One of the longer standing ones would be the iShares MSCI Emerging Markets (EEM-N), and his other choice would be the Vanguard Emerging (VWO-N). These have very similar types of performance. Thinks Vanguard might be a little bit cheaper. He likes the emerging markets. (See Top Picks.)

Market. This is the weak period seasonally where liquidity dries up. You want to make sure you have very high conviction in the small caps you own during this period. He has a little more cash than what he would usually have. Although cautious because of the seasonality, long term he is bullish.

Economy. Global growth expectations a year ago were probably a little higher, but if we get global growth of 3% we are doing pretty well. The US seems to struggle to get 2% growth, Canada is less than that, Europe, the UK and Japan have picked up again, over 2%. On the other hand, China seems to be slowing. Believes Canada is the best place to be invested in, because if your assets are in Canada, you will be spending money in Canada. At this point, he would gradually put money to work into the US market.

A top pick in a dividend paying oil stock for a long-term believer in oil? He has 2 stocks that he has as “adds” in his portfolio right now. Vermilion Energy (VET-T), which is a higher yielder, and Cenovus Energy (CVE-T), which is in the doghouse right now. Longer-term, he thinks that Cenovus is a good place to be. Another stock he would suggest would be Canadian Natural Resources (CNQ-T), which has a lot more free cash flow generation coming, and will probably be the fastest dividend grower over the next 2 to-3 years.

Economy. Global growth is still there, but is starting to plateau. Positive global growth is good for commodities. There has been a good deal of growth in 2016, plateauing a bit in 2017. A “steady as she goes” market, and a “steady as she goes” economy. He is not expecting any wild swings up or down. Oil is trading in a range, anywhere from $45-$55 is a good range.

US Treasury Bonds? These are viewed as one of the safest things in the world. Any time there is market uncertainty, there is usually a flock to US Treasury Bonds. The demand is there, which is why you see yields come down from the 2.5%-2.6% level to where they are now. He views that as being a bit overdone.

Market. The big Canadian banks are reporting this week. Bank of Montréal (BMO-T) came out with its 2^nd quarter numbers today and it was a miss. Their US business was the biggest drag and you could be concerned that the other banks affiliated with the US, will have the same problem. However, they all have different mixes by both geography and line of business. Toronto Dominion (TD-T) has a slightly different business mix, with more consumer lending exposure, as does the Royal Bank (RY-T). He is not expecting huge surprises from any of them. The market expectations are running pretty hot for at least 6 months, if not a 9 month extension by OPEC on the 1^st cuts that they agreed to back in November.

Canadian fixed income with US raising interest rates? Interest rates are very, very low, so anyone seeking income are hard-pressed to find competitive income. fixed income serves a dual purpose in a portfolio. First and foremost, it has to be the bedrock and the bastion of capital preservation. Secondly, you use it to generate current income. You have to walk a narrow path, because a spike in interest rates will derail return on your profile. On the other hand, having poor credit risks will also create problems. His solution would be to own high-quality investment corporate credit and keep your duration in a 2-7 year timeframe.

Energy. It has been a challenging year for people investing in energy. He had a good year last year, and was prepared for a better oil market than what we’ve had so far. Had felt that the drawdowns would have occurred faster. While the compliance by OPEC countries was very high, a few took advantage to send oil from their own inventories and ship them to the US. We are at the point where the cut in production should be mirrored by a cut in exports. You combine that with refineries now coming back on line, as well as the US increasing their own exports to other countries. There is still more work to do. There is a despondency among investors. He is basically all in on services, with a few US EMPs. About 80% exposed to the services. We are now at a tipping point of $50 oil in the US, where demand for services exceeds supply. You are seeing huge pricing gains with regards to sand, pressure pumping and drilling. The one area that is benefiting him the most are the US service stocks.

Energy. Recently oil rallied from $44 to $51. While that happened, there has been very little reaction on the underlying energy equities. The OPEC meeting is coming up, there are comments from Trump, but the most interesting thing is that energy production has become sort of mass manufacturing. There is a certainty today when you drill a hole. When oil prices started to rise a year ago, energy production came on strong. There is short-term noise, such as Trump saying he was going to sell off part of his strategic reserves. That was not huge in relation to the world’s supply of oil. Investors are starting to catch on that even if we do get prices rising $5, $6 a barrel, you are going to get a supply response that means it is unlikely oil goes $10-$15-$20 higher. History of periods of very low volatility happen during extremely positive markets. In the 1980s and 1990s when there were very strong equity markets, you got extended periods of very low volatility. They happened in bull markets. When you do get volatility, it tends to end very quickly, the market resets, and works its way higher again.

Market. Volatility is what most investors are wrestling with now. Volatility was at all-time lows for some time, and investors felt there was complacency in the market. We really only had one piece of Trump news this week. His pro-growth policies fell off the table for a couple of hours, and the market sold off pretty aggressively. Investors used that window as a buying opportunity, and there has been a come back in trading. 70% of companies have reported their results for the last trading period. Analysts were looking for a 9% earnings growth, which would have been the best since late 2011. However, it is not just looking at what stocks have done, it is what you are buying at today’s prices that you are getting from earnings. If expectations were for 9% earnings growth, if achieved, that would be the best since Q4 2011, and we are already surpassing that. That means that when looking at PE valuations, the earnings (E) part of the equation is understated, which means valuations are more attractive than what many are suggesting. With wage growth at about 2.5%, and the unemployment situation being fine, low volatility in the stock market, the Fed has to just be ecstatic with where things are right now.