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

Educational Segment. How to play the market if you are risk adverse in 2017. Are Trump policies coming in or not? Over the last 10 years the marginal tax rate for corporations has come down from 50% in 1955 to 35% recently. Analysts expect 22% earnings growth from the S&P. The PE of the S&P is 21 times. It is a 23% world GDP economy. The banks have been the big leader since the election. It’s going to take a lot of interest rate hike to get the banks back to where they should be with interest rate spreads. There is a new president, first term, new party. The average pattern has half a percent gain. We have already exceeded that. The inauguration is pretty much the high point for the year. Get into options late in the market cycle.

Markets. He expects oil to go below $40 this year. OPEC is successfully getting compliance for reduced production; the problem is that the numbers don’t work. In a chart showing past cheating by OPEC to 1995, there were three cuts that occurred before the numbers started working before OPEC got compliance. This first compliance cut is not enough. Libya is increasing production, and Iran/Iraq are raising production and so are non-OPEC countries like Russia. The way to get around OPEC quotas is to call everything ‘condensate’. When everyone realizes that compliance is not there and that cutbacks by non-OPEC companies is not happening, everyone is talking rising production in 2017 over 2016 and he thinks we will bust $40 in Q2. How low we got is dependent on how big the build is in inventories.

He is a big fan of Natural Gas. Inventories are coming down, especially over the last couple of weeks. We came down from 4 to 3.1 TCF. This is the not the same as oil. US production has come down. Demand is rising and production is falling. He thinks the price of Nat Gas could retreat in March. With the lack of drilling we will not fill storage during the injection season.

Income over two to three years. There is a new ETF from BMO that is a high dividend ZWH-T (US) and ZWE-T (Europe) and also a Canadian one. You will get 6-7% a year and he loves these in a defensive market.

Markets. The Trump rally kept going after he was on the day after the election. It has been an interesting couple of months. He is still quite cautious on markets, especially given the move up in the markets. He thinks investors are getting set up for disappointment with regards to Trump's pro-growth policies. He can go long or short the market and in Canada, US or off shore. He is running a little bit net long right now. He has built a long position in Gold and Energy spaces.

Canadian Pipelines for a long term hold. He has been short for half a year. He only has ENB-T right now. It is a low growth space in a challenged industry. They are quite interest rate sensitive. He has countered his shorts by being long in various renewable power producers.

Golds. He likes gold and started to about a month ago. He thinks the US might try to talk the US$ down. Inflation expectations have really started to take off. DGC-T would not be a bad one to own, or use a gold ETF. Gold is a safe way to safeguard yourself against Trump’s tweets against companies or industries.

REITs. He does not own any. He owns Dream Unlimited. REITs in general are just more interest rate sensitive than he likes. If you believe rates have bottomed and will not move much higher you could get some good returns out of it. DRG.UN-T is one he would like.

Market. We are coming out of a 3-year period where bonds have outperformed stocks. It now looks like we are coming out the other side, which raises the question, are we going to hit 20,000 on the Dow. In the very short term the answer is yes. He is expecting a bit of a correction in the 1^st quarter, but once that is behind us, it is onwards and upwards. You will have an opportunity to sell bonds over the next 2 months as the prices move back up and yields come down a bit. Take the cash and put it into equities, because he thinks there is lots more legroom and upside on equities over the next 2 years.

Market. We are definitely getting a little boost from the Trump rally, and thinks it can continue for a while. Longer-term, he is a little more worried about the protectionist and nationalist type policies that can spur inflation, making goods more expensive. Inflation is not a good thing for the market. Energy is still recovering, but is still nowhere near where it used to be. Companies have kind of adjusted to the new lower energy prices. Still thinks there are a lot of opportunities in energy.

Markets. It is amazing what is going on in Asia. The Libor rate hit 80% overnight in Hong Kong. Is there such a US dollar shortage in the world that China is willing to pay anything for a US$? The US$ is going up. The dollar index has seen a 5% increase since the election. Last night there was a huge rally in the Yuan, to stem capital outflows. You are going to see some volatility based on the US$, and today is a down day. He has no prediction on the markets this year. In the first year of a new president, markets are usually down. 2017 is ‘hold onto your hat, as there will be lots of volatility.’ But you can always make money with volatility.

Market. His clients are a lot happier now than they were a year ago. Going into 2017, he is cautioning his clients. 2016 was a great year but expects returns are probably going to be in the single digit area. His long-term strategy is to get returns of 6%-8% for clients, and this is a year that he thinks he can do it. The market right now is at about 17X forward earnings. The top of the range is 18X and the bottom is 15X. If there is a scare of inflation in 2017, the multiples are probably going to come down. Earnings may still go up, but what they are going to pay for it, they is going to go down. His portfolios have likely reached a maximum in economic sensitivity. That is the more cyclical parts of the market such as energy, commodity materials and industrial stocks. They are about as high as he would go now. This market started its uptick in 2009, so it is getting a bit aged, and he thinks we are somewhere in the 8^th inning.

Market. This year is different, because we have a president that nobody can predict. It is impossible to have any notion of what is going to happen in the next 4 months, much less the next 4 years. He is queasy that some of the certainties we could count on, like NAFTA and a certain level of civility, are just not going to be there. Thinks a corporate tax cut is priced into the market, but doesn’t know that repatriation is priced in, because we haven’t seen a big move on the tech stocks like Apple and Google that have a lot of cash overseas. The biggest uncertainty might be with the supposed huge infrastructure plan. He is not sure that Congress is going to buy into that, particularly on top of tax cuts. He can see a lot of instability, between BREXIT, Marie Le Pen and Angela Merkel. On the other hand, the euro is approaching parity, which is very positive for euro stocks.

Canadian Banks? Doesn’t think it is too late to get into the sector. They’ve had a terrific run up, and certainly more expensive than they were. It is a fallacy to stay out of the market because you think you are going to get a better price in the future. People miss out on a lot trying to get the best price. Canadian banks are not terribly expensive, especially compared to the fixed income market. Bank of Nova Scotia (BNS-T) is his biggest holdings because of its international exposure. He also likes TD (TD-T) because of its US exposure, and National Bank (NA-T), because on its metrics, it is still the cheapest.

Marijuana stocks? His problem with this is that he doesn’t think there are any barriers to entry. Once the product becomes legal, even if it is regulated, this stuff grows like a weed. People can grow it in their backyard. Nobody is going to get arrested once it becomes legal. Thinks the margins producers are going to get, in the long run, are going to be very, very small. Currently this is a bubble and people are going to get injured.