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

Market. As the US bond yields moved up, people have moved into more cyclical pro-growth sectors. He started looking at energy last year when prices were going down. Any time he sees an area out of favour or depressed, he starts to do his homework. Oil prices have moved up significantly, but some of the Canadian producers’ stock prices have not moved a lot. A lot of that is due to a possible border adjustment tax, and what does the Trump administration really mean for the Canadian energy industry. The market has taken a fairly draconian review, and people are selling first and thinking about the real implications later, which is not the right way to think about it. The comments in the last few days suggest that the outlook for the Canadian industry and the US need for energy and dependence on Canadian oil, particularly heavy oil, is quite high and they want a constructive relationship. He is also starting to look at some of the beat-up names in healthcare.

Market. Earnings have been batting 1000 in the energy sector, but he wants to see this reflected in the stock prices. Six of the energy companies have reported so far. Two are beating expectations for every one that is falling short, but they are all coming in better than expected, however the sector has fallen out of favour. That reflects investors increasing concerns about a warm winter, continental energy flows and a generally oversupplied natural gas market. To top it all off, there are concerns about possible border taxes.

TFSA or RRSP? Given the tax treatment, he would put more conservative holdings in the RRSP and the more aggressive names in the TFSA.

REITs? The long running rally in the bond market of 5+ years came to an end late last summer. With that, he expects to see the demise of all the bond proxy trades that are in the equity market, such as REITs, pipelines, utilities, telecoms and all the plays in the market where people were clamouring for yield because there was no alternative.

Base metals? Most of the industrial metals are very strong, which is not surprising given his thoughts on the global economy coming out of the slump in 2016. We are seeing better industrial demand in China and some of the Purchasing Manager Indices ticking up consistently over the last 3-6 months. Also, there is high hope for big infrastructure build in the US. In addition, there has been some supply outages in copper in some of the largest mines in the world.

Market. A new bull market was started in 2013 and we have lived through the 1^st major correction of a long-term bull market that ended in February 2016. Since February, economic data, price behaviour in the market and leadership has slowly been improving. We made new all-time highs in July in the S&P 500. Cyclicals that are leading the market, started to lead in June signalling a transition from a market driven by interest rates, to one driven by earnings. The groups that have been leading since then are the groups that led through the election period. Then we made new all-time highs again over the last few days. The market is showing steady improvement, and there is no deterioration. Earnings growth is coming in a little ahead of expectations. In a strengthening market, you always want to look for low correlations, i.e. stocks that are not behaving like one another. That is very healthy in a market. There is no bear market or major correction in history that happened while breadth was expanding. The simplest way to determine what type of market you are in is to look at the way the market reacts to news. If a market can handle bad news and rally, don’t fight it.

Diversified investing? Looking at a fully invested equity portfolio of 20 to 40 securities, he starts with a 2%-2.5% weighting. A full weighting is 5%. If he had 20 positions, it would be about 5% weight. He picks companies, not size. Prefers an equal weight portfolio, but you want representation from different types of companies, i.e. different industries, different market sizes.

Market. A lot of correlation has been made about the market move and Donald Trump, but he has been calling for an increase in interest rates flowing some money back towards the equity market. Economic fundamentals are strong. If rates rise a bit more, some of his favourite stocks might go on sale so that he could add to them on a dip. We are 9 years into this economic expansion, the second-longest expansion on record in terms of a business cycle. However, it has been a tepid expansion, so it could go on longer.

Markets. He is not sure we will see anything significant coming out of the Trump/ Trudeau meeting. If you X-out all the commodities we export to the US, there is a pretty balanced trade between Canada and the US. If they target specific industries those industries could get hurt. He did not see softwood lumber on the agenda for today. Trump’s idea of fair may be very different than Trudeau’s idea of fair.

Paying the S&P-500 – Pullback possible? He thinks we will get some disappointment risk on execution. The tax plan is probably not being implemented until 2018 now. He thinks there will be a buying opportunity coming soon with a 5-10% pullback as there is one every year. He would not be a buyer of the S&P-500 for the long term right now, but it is good for a trade.

Canadian version of ZPW-T? He does not think there is one coming because there is not the depth to the Canadian market.

Gold. He was buying XGD-T, ZGD-T when gold was around $1150 a month and a half back. He has since sold out of XGD-T. He trimmed GLD-N last week. He does not know if Trump will be bullish for gold or not.

Educational Segment. Using Stops. The value approach looks for a range of support and how you buy into it. Anchoring is a behaviour where you want to try to get your money back. That is the wrong way to think about it. You should think about where you should put the money in a losing stock. Get out of a position if it is not working. You should have a plan on when to get out.

Markets. Trudeau and Trump should be talking about the economic issues that both countries share, rather than how to deal with refugees and so on. NAFTA is important to both Canada and the US. Energy and financials have upside potential. You need to see some action being taken for the stocks to move higher.

Market. It was interesting to see the $20 trillion mark on the S&P 500. The US government is going to go through a level of $20 trillion worth of debt as well. He is reducing his positions in financials and materials. He is not finding a lot of things to buy in this market. Valuations are too high, and there is not any fear out there. Volatility is low, and no one thinks anything can go wrong. There is a time for caution. Volatility is low and people are not worried, and that is the time when you should be worried. Economic growth is OK, but he questions if it can get ahead of inflation which is coming a little bit higher. The game of low interest rates is somewhat over. Valuations are excessively high and bullishness is high. Once you get to thinking you are missing the party, the party is almost over. There is a lot more risk to the downside than there is to the upside in the short term.