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

Energy. Oil is probably range bound, so he doesn’t see a huge catalyst for many of the names. This is a sector that you don’t need to be overweight in. We have a pro energy administrations south of the border, however we do have an abundance of supply right now. While the OPEC agreement seems to be sticking, it is sticking at 75% of what was originally agreed. We are in an overcapacity world right now.

Markets. The Chinese growth story is over. Chinese debt (gov’t, corporate, personal) from the Lehman moment was about 165% and now is pushing 265% debt to GDP. The Chinese economy that was growing at 6-7% was 100% fueled by debt. The economy is still growing, but just because they are slapping on the debt. The demographics in the world are a big problem. With protectionist policies under Trump, Chinese growth will have trouble keeping going. Canada is only growing this year because of debt.

Treasuries Outlook: The longer the maturity, the more negatively correlated it is, compared to equities. The long bond is the best hedge. The longer bonds are starting to find support whereas short term are starting to back up because of the fed rate hike scenario over this year. We are getting a flattening of the yield curve, forecasting economic slowing. If the market was forecasting inflation then the long bond would be selling off more.

Covered Call Protection against a recession? ZWU-T is the safest one. It yields about 7%. In a recession that will give you the best protection. ZWB-T would sell off more. ZWC-T looks at the best dividend paying companies with covered calls.

Oil bulls think we will rebalance and energy will go back up. He is a realist. He just bought a plug-in hybrid car. The first 30 km of the day it runs on electricity. All the cars are going this way. Demand for oil is going to come down in the developed world. The TSX energy sector is priced at $60 oil. He is very underweight.

Educational Segment. Long Term Investor Psychology. Per unit of gain in a portfolio, the psychological value diminishes as you get more. The more money you start to lose, the more you increase your unhappiness per unit of loss. When we get complacent after a period of gains, this is our biggest point of risk.

Markets. Something really big is underway. We are going back to a 90s style funding culture of exploration and discovery. In the last month the shift has brought it back home to him when companies started reviving projects that did not work in the past. They are now doing brute force drilling and not only hoping to hit something, but gathering a lot of geological data.

Mining. He is pretty positive on the metal sector, gold prices, etc. Generally speaking, gold prices are inversely correlated with the US$, and the world’s confidence in America. We are seeing a slowly improving economy in the US and are probably going to see interest rates bumped up again. Those are both negative for gold. But the flip side of that is Trump and his administration. We are dealing with someone unstable, and the team behind him is certainly inexperienced. He is concerned that they are not going to be able to react and deal with a major global crisis, or black swan of some sort. Feels that is what is holding up gold prices even though other things would suggest that it goes down. On a more positive note, major mining companies are not finding enough gold to replace what they are mining, their reserves are depleting. They’ve cut exploration dramatically and are not finding new deposits. The place to be right now is in the very junior exploration sector with good people and legitimate projects, and that is going to do really well this coming year.

Mining. Most of the big companies are setting their gold reserve prices at $1250. A lot of the financings is happening for a lot of companies, but some of them have very marginal projects. Those kinds of projects don’t work in this environment, because a lot of big companies have been writing down their reserves to $1250. If gold goes up to $1500 for example, they could already add maybe 10 million ounces from their own assets, rather than go out and acquire them. They need to replace assets of quality, that work at the gold price that the reserves are set at, and generate some kind of double digit return. It’s also about the team. There are not very many teams with the relevant experience, not only in the jurisdiction, but also in the deposit type that they are looking for that can marry all that. Lately there have been a lot of private placements by majors in these kinds of companies with those kinds of assets and those kinds of management teams. That is basically what he is looking for.

Market. He is waiting for the US Congress to get moving on some of the proposals. What will impress people the most is how fast or how slow things are going to happen. That will be the main thing that markets are looking at. If Congress comes through with a broad border tax, that will be a problem. He can’t see them doing that on the commodity side. However, it is a risk on the manufacturing side.

(Feels the Federal Reserve is going to increase rates by 25 basis points.)

Gold? An area of the market that he is definitely not very active in. You have to be very fleet of foot, and operating with relatively small amounts of money. With the looming Fed rate that will probably bring the US$ up more, your gold prospects diminish. He really wants to see inflation come alive before he steps into gold.

Tonight's program is on taxes, not stocks.

Markets. In 2017 it will be a replay of 1975 and 2001 with the US dollar and gold rising over the course for the year in tandem. The US dollar strength has more to do with the weakness in other currencies and gold strength has to do with a flight to quality. In the past the dollar has eventually rolled over. Gold is closer to the beginning than to the end of a bull market. The real interest rate yield is actually negative as the purchasing power of the dollar is declining especially when you take tax into account. Interest rates have to go up. In the near term the copper price will trade lower because it is ahead of itself. Within three years it will trade higher due to supply declines. He is investing in predevelopment stage copper projects.

Gold Bullion. He buys it as a form of insurance. Traditionally gold has been a form of insurance when there is a lack of faith in social and political institutions.

Market. Everyone wants to pin market value on the recent pro-business agenda of Donald Trump, but we can’t discount the fundamental data that is actually supporting the market right now. We have seen phenomenal economic data, including a Philly Fed index, a gauge of manufacturing conditions, the highest since 1984. Jobless claims are the lowest since 1970. The Small Business Optimist Index is the highest since 2004. Consumer confidence is the highest in 15 years. All these suggest there is a lot of optimism in the market. That is going to spill over into equity markets. Donald Trump is fuelling a lot of that optimism, but he doesn’t get all the credit. The economy is recovering from the manufacturing recession we have seen over the past couple of years. Factory shipments last year, were the highest in 6 years. Even the global PMI are inching up well into expansionary territory, some of them at multiyear highs themselves. Markets are feeling a little pricey now and are overbought. The S&P 500 hit the 300-point range when it broke out above 2100. You project that range above 2100 and it gives you 2400. 2400 was hit just yesterday. All the momentum from that bullish pattern has being exhausted, so you can’t say that the market is going to go much further, because it has reached the calculated target. Right now, we are at the most overbought level in over 20 years. It is now reasonable to expect a consolidation. Seasonally, we are still in a strong period for equity markets. March and April are 2 of the better months, and tend to gain about 60%-70% of the time each of those months. We are on a trend of higher highs and higher lows, so any weakness warrants to be purchased. It is a little difficult to put new money to work, so you want to pick your points, and perhaps wait for that pullback to the 20 or 50 day moving averages, which would be ideal entry points for this market.