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

Educational Segment. US Government Shutdowns. Valuations are high and this is a ‘risk-off’. You want to be defensive if you can. There have been 22 government shutdowns in history. The most recent two had a small impact on GDP (0.1%). The market historically gets nervous before a shut down and then is fine afterwards. From a markets point of view it is a case of buying dips.

Markets. People are taking a second look at the Trump administration and wondering how long will it take to put through some of his measures. The market rally is not entirely about the new administration. What we have seen is optimism over the underlying economy and then how much more positive it will be under these new measures. We are seeing a dichotomy in the economic news. There is optimism, but no data to back up the sentiment. Ultimately the underlying economic story will drive stocks. She thinks we may be starting a decade of strong growth.

Market. Today it is a relief rally, because of the French election. “Sell in May and go away” has a nice ring to it, but is somewhat impractical. If Trump introduces his tax legislation this week, not to mention other things, and if the mood in the house can be changed to give it some likelihood of passing, then you definitely stay with the markets. On ETF’s, what you are seeing for the 1^st time is a sudden exodus from value added management to ETF’s. That indicates people want to get into the markets and don’t trust active management. At some point, there will be a tipping point if quarters of ETF’s decide to sell. Stand well back, because there could be a nasty correction.

Semiconductors? Apple (AAPL-Q) is now considering doing its own internal semiconductor products. If you have a major company like this getting into the business, that could be a long-term warning sign. Check with your analyst or financial advisor to do some work on this.

Market. Dividends make you rich over the long-term. Bond yields are still very low. Dividend payout ratios on the TSX are at very healthy levels. There is a lot of opportunity for dividend growth and EPS. We may be in a bit of a sideways environment here. Feels the economic background is still quite favourable for stocks over bonds. The Canadian market has better upside over the next 4-5 years than the US one.

Tonight's program is on taxes, not stocks.

Markets. Borrowing costs are staying low for the foreseeable future because they are driven by inflation and we aren’t seeing it. Low interest rates are actually incentivizing people to save, contrary to what people would think. The rest of the world is cheaper than America. Growth rates are actually higher with multiples being lower. He looks for opportunities there. Emerging markets have been much better in the last 12 months than the last few years. With the US dollar stabling or weakening this bodes well for emerging markets. Trump tweets and speaks, but then does not act as he indicated.

Deflationary environment. He does not feel we are headed here. He sees unemployment going down, globally, and wages trickling up.

US Fed Monetary Policy. There is concern we might be heading to an inverted yield curve (indicating we are headed for a recession). We are not yet seeing that. The bond market is projecting the growth rate is not as robust as the Fed feels. He would be very surprised if we did not get two more rate rises this year, but they would not impact the 2 and 10 year yields. We need to get interest rates normalized.

Saudi Aramco. It should be a trillion dollar company. They are fully integrated. He has not yet finished looking at it for valuation. There will be a risk premium because the country is effectively an emerging market. He will look at it for sure.

Market. The US markets are overvalued, meaning that return expectations should be lower. Earnings were at roughly 115 last year, and are projected at about 132 this year, so we are looking at 18-18.5 on a multiple basis. Other areas are looking more attractive than the US market. People should be looking at Japan and particularly Europe. Europe has had quite a few months now of positive economic surprises. ETF’s would be a good entry for most investors.

A stock or ETF for European exposure? If making an entry into a market where you have never been before, an ETF is a good way to do it. You get good diversification across countries and across sectors. Everyone assumes Canadian ETFs are all cheap and are all going to give diversification. That is not necessarily so. He’s been buying into Europe through a US listed ETF. (See Top Picks.)

Market. Since last February, we have been in a very productive equity market. We are having a little pause right now which he doesn’t think will take very long. There has been a great focus on passive, low fee investing and being an index investor, at precisely the moment when correlations, or the degree to when stocks and sectors behave the same, is at its lowest level in 15 years. The opportunity to target specific themes and companies is really an outsized opportunity right now, and he hopes people will be able to take advantage of it. From 1966 to 1982, the market travelled sideways in a series of advances and declines. The late 70s was when Vanguard got its start in Index investing. That was the last time managers had been stupid for the previous 15 years. The S&P 500 from 2000 to 2013 travelled sideways in a series of advances and declines, and many managers had a hard time beating it. The topic now is index investing/passive investing, but that is looking backwards. Today, we have very strong clear themes in this market, and the opportunity to target and be an active manager has not been better in 15 years. The market bottomed in 1981, and by 1985 no one was talking Index investing.

Stops? He uses Stops on all positions he invests in. Half the battle is knowing when to Sell. Doesn’t use automatic Stops, but monitors a stock for when it gets close to an exit price. He uses “point and figure” price charts, which help him to recognize inflection points where behaviour is changing in the security. For a longer-term investor, they could use the 150-day moving average.

Market. We are in the very constructive environment. Globally, the economy is doing very well. Germany is doing well, China is coming on, India is doing well. We are in a healthy global economy, just coming out of a 10 year, following the mortgage crisis. However, with long bonds at 2% and equity risk premiums at ranges of 4%-5%, we are seeing bond substitute companies like Coca-Cola selling at 25X earnings. Valuations are fine if interest rates don’t move. We are in a very healthy environment and thinks growth stocks are fine.