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

Index funds? These are a lot like the plain-vanilla ETF’s that were the 1^st ones in the market. These compete with mutual funds and give the exact same benefits. They are cheap and broadly diversified, and track a benchmark. If you are a long-term buy and hold investor, this is not materially different from a mutual fund. However, you should still look at costs. A lot of them frequently cost over .05% or more, whereas you might be able to find an ETF that is tracking the exact same benchmark, and cost 1/10th of 1% or less.

Markets. With markets going up, it is time to look at alternative assets through using Pair Trades giving some hedging protection for portfolios. The markets have had a heck of a rally since the election on November 8, a good start for 2017. You have to question as to how long this could last. The forward valuation of the TSX index is trading at 16.4X forward earnings. That is the highest it has been this time of year since 2001. If you look at the expectations for earnings growth in Canada, the market is looking for about 24% this year, twice what it is in the US. The VIX, a measure of volatility, has only been this low 3.5% of the time in the last 2 decades. We are a lot closer to the top of the market than we are to the bottom. It makes sense to put some sort of portfolio protection into place.

Market. Looking back over the past 15 years or so, last year was the 2^nd year since 2002 that we have had negative returns in healthcare. The other was in 2008, but it was the best performing sector. There is a lot of noise around the politics in the US about the affordable care act. His view is that the election was a critical pivot point. Given where valuations are right now, if you have a longer-term perspective, the fundamentals for the sector are intact over the medium term. The healthcare sector currently is very inexpensive. The forward multiple on the S&P Healthcare is 2.5 multiples below the market. We haven’t seen that in the past 15 years. That means that the price you are paying for the earnings for the companies is significantly below where it has been, compared to the market over the past 15 years.

Market. Using Schiller’s cyclically adjusted PE, US stocks are not cheap. At 28X, it is 70% higher than the long-term average. However, valuations in most cases is not a good measure for market timing. More important is what is happening to interest rates. A lot of people indicate we still have another year or 2 for the market to run before there needs to be concern about an economic slowdown. Goldman Sachs thinks interest rates would need to go to nearly 4% before the economy would be markedly slowed down.

Energy. Charts are pointing to a $75 oil in the next year. If oil breaks out, you are going to see a lot of people in Alberta having a spring back in their step.

Market. There is more bullishness. Canadians, with our much more centric political viewpoint, have taken the Trump election much more cautiously than the US, which are putting the pedal to the metal, as they are realizing it is really, really good for business. Canadians are slowly starting to clue in that it is really good for the US economy, and consequently good for Canadian and global economies. We will get indigestion in certain areas as we move on through 2017, but in other areas we will get some very positive results.

Markets. Valuations have run ahead a little bit. The Trump rally surprised a lot of people as did Brexit. The French election will probably get the world’s attention. Breakdowns are not always what they seem. There are some things that are not adding up. What is the fuel for the year? The VIX is also going up. Part of this last little push last week is that a hedge fund had to cover an error in their prediction. The breakout confounded everybody. Now we have a pause. For a month or two there is a risk of a correction.

The Five Banks. Caller is 50%+ with them. Is splitting positive? It can get more investors into the shares. Look at BRK-N that have not ever split. It is great that we focus on the general sector. He does not see inflation as a big issue and we have seen a good run in the banks.

Markets. We have priced a lot of things in. The S&P is up almost 10% since the election, with the TSX up 9%. The market is anticipating the pro-growth policies being implemented and ignoring the anti-trade comments. If there are delays in implementation we could easily get a pullback. The US economy has been improving all along even before Trump. Unemployment has been at 5% or lower for 16 months. She likes what she sees for the earnings season. Tax cuts will help to bring price to earnings ratios down. We need to see policies implemented now.

US Banks. They have all done quite well post- the election due to the potential of less regulation. She owns WFC-N. There is nothing wrong with the others, but WFC-N has lagged and was better managed during the financial crisis. JPM-N is the second best one. Wait for a pullback before buying or adding to a position.

Markets. Big stocks are not cheap right now. We had an 8-9 year bull market. They are made all the more expensive given that interest rates might go up. He is a bottom up guy and feels there is always something to buy. Stocks always take a breather when they have had a run for a long time. You have to expect there will be a breather at some point. Have lots of cash and be ready to pounce when you have an opportunity.

Markets. Trumps policies will be business friendly no matter what we think of his politics. Everyone thinks a tax cut is good in the short term. The infrastructure program could boost GDP by ½ half to ¾ of a point. But then there is the debt on the other side of it. Saying you are going to spend money and spending money effectively are two different things. Spending has to be ramped up. Markets may be getting a little ahead of themselves. A lot of market gains have been concentrated in a couple of sectors. If you take those out of the equation the rest of the market looks a little more sensible.

Lithium. It is everyone’s favourite metal because of batteries. There is no world shortage of lithium, but it does not mean it is hard to find. It is not a scarce resource. If you bought it 5 years ago you were a genius, but now everyone is on that trade. It is too late.

Retailers like WMT-N and TGT-N with Trump's import policies. Will Trump do something drastic about imports from the East? If he does then Walmart's and Target’s margins will shrink. Amazon has eaten the lunch of the retail industry and it is not stopping any time soon. He is reluctant to get anywhere near the big retailers until we see exactly what Trump will do.

Over concentrating in financials. If you are not diversified you are taking risk. The Canadian financials are a tremendous sector. It is an oligopoly. If they do go down, however, they will all do so in concert. He limits himself to no more than 20% of a portfolio in any one sector. He likes Utilities, Telephones, Pipelines and REITs as they are nice diversifiers away from the banks.