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

Market.The Dow Jones is within striking distance of $20,000. He typically focuses on small to mid-cap stocks, but does follow every index. The Dow is the oldest of the indices and most commonly followed by the public. However, it is only 30 stocks and is representative of the broader industrial economy. Since the election, stocks have been doing quite well. It wouldn’t surprise him if it hit $20,000, because sentiment around the US industrial economy is quite positive. Once Trump actually takes office, things are going to get a little harder. It’s easy to announce all these programs, but a little more difficult to implement them. From a seasonal perspective, he thinks there will be some reversion. There are a couple of drivers late in the year that typically have a major impact. January is usually a very good month for gold, and because they are so oversold and with tax loss selling, January could be a very nice month for the gold sector. Stocks that are really oversold that have good valuation and good fundamentals should do very well over the next 6 weeks. Tax loss selling is different this year because of the violent rotation of winners and losers late in the year.

Economy. This has been a 35-year bull market and there are significant changes coming. A chart showing 30 year US government bond yields from 1981/1982 on showed a long decline in rates. We’ve just had 2 Fed hike rates, which means a lot in housing, because mortgage rates have gone down each time. For the last 4-5 years, a lot of people have been sitting with 3% mortgages. When they have to renew, they will probably be looking at higher rates. People should start to prepare for this. In the last 10 years, pensioners have taken it on the chin because they’ve been trying to get safety with yield to prevent erosion of capital. It hasn’t worked as yields have continued to trickle lower and lower. He wants to have yield, but also needs to have growth. The government would like to have more inflation and have been jamming rates down hoping to get it. On the other side, all this new technology, such as Uber and Amazon, is actually deflationary because costs are going down. The demand for commodities is not what it used to be. He is also using a “Progressive Value” approach, like a “growth of the reasonable price” system, and is looking for companies that are well valued, but with good growth prospects.

Market.This has been a year to remember for investors. When we entered the year, we didn’t have very high expectations, and yet look at the markets that we’ve had. That happened in spite of all the things that came in to shock the market. We had BREXIT, Trump winning, the migrant crisis, and at the same time we still have the carryover of the same problems with Italy, Portugal, Greece, etc. Those haven’t been resolved, and yet politicians have almost been taking a deny and delay tactic towards that. In spite of all this, the market just seems to keep moving up. People predicted that after the post Trump victory, markets might go down. A lot of people made the wrong bet on that side, and instead we have probably had one of the longest postelection rallies in history. We still go into the next year with relatively high valuations. All those problems are continuing to follow us, and yet expectations seem to be very, very high in the market. As a value investor, that makes him a little nervous. He is happy to be carrying a fair amount of cash on the sidelines, as there may be opportunities to catch some fallen angels next year. In the last quarter or so, he has probably been a net seller rather than a net buyer of securities.

Markets. This year small caps in Canada have outperformed for the first time in years. A lot of golds got moved up and out of small cap indexes. A lot of managers didn’t own gold earlier in the year. He tries to pick the best stocks in each sector and to have a well diversified portfolio. It has a lot of sector rotation recently.

Marijuana. He bought one stock (APH-X) and did extremely well. He does not understand the valuations on these stocks now. It is a tough industry right now because the stocks are all going up and the multiples are extremely high. This is not the time to get in but APH-X would be the one he likes best.

Market.The Dow is almost at $20,000, and he can almost guarantee it will get there. However, it is just a number and the Dow is a pretty lousy index. The highest price stocks are the ones that move and have the most influence on the Dow. Goldman Sachs (GS-N), which has done nothing until a few weeks ago, is the highest priced stock on the Dow, while one of his favourite stocks, Visa (V-N), has done nothing this year. The Dow is a collection of very good companies, but price movement doesn’t tell you very much. More importantly is the market capitalization weighted index, the S&P 500, companies based upon the size and shares outstanding multiplied by price. You want to have a portfolio of uncorrelated stocks so that things don’t kill you when the marketplace goes down. A lot of people are betting on interest rates going up, inflation and material and commodity prices going up, so people are betting on those interest sensitive companies. If they are wrong, they are going to be in for a world of hurt. They are selling the interest sensitive names like REITs, utilities and pipelines. The best approach is to have a diversified portfolio of your best companies. If interest rates go up, maybe some will do well and maybe some won’t, but over the long-term, (2-5 years), it shouldn’t mean a thing if you own good quality names. 3 out of 4 years, the market goes higher. He always wants to position his clients for the long-term.

Markets. In a post election year markets typically go higher. The market typically goes up until inauguration day, then pulls back and then goes higher again. During big changes in government you get big changes in markets. When Eisenhower and Reagan were elected, markets dropped from inauguration day until September. Be careful for now because markets are overbought. Between now and inauguration day you should still do well. The TSX typically goes up more than 2% in that period.

Euro vs. US Dollar. The Euro is still in a downward trend but may be forming a base. You want confirmation that a base is forming. The US dollar is still strong and broke to new highs Friday. There is a longer term base at par to the Euro. Euro stocks during the last two or three weeks have started to outperform Canada and the US. It looks like Europe is finally starting to show some good signs.

Oil. Historically prices bottom in the first week of October and move higher until August each year. The sweet spot is the first week of January until May. It broke out last week to a new high. It looks like OPEC agreements could hold.

Gold. Seasonally, gold and gold stocks are strong from the middle to the end of December until the end of February and then again from the end of June until September. We don’t know if gold and gold stocks have bottomed. Watch for another couple of weeks.

Canadian Banks – any going to split their stocks? When banks get to $100 they often do a split at the next AGM. Seasonally, bank stocks are strong from the end of August to the end of November. He is still looking for a technical reason to sell banks but they just keep going higher. Around this time of year, the banks tend to underperform.

Educational Segment. When Stocks are Overbought or Oversold. Look at the percentage of stocks above and below their 50 day moving average. Below 20% (30% in Canada) is a buying opportunity and above 80% is a selling opportunity. These give you signs of the market preparing to sell off or to go up after buying. He suggests you hold off until inauguration day and then you have a good opportunity to take money off the table.

Markets. Trump is not a single catalyst. The bond market made a turn in July. The reason for rotation was made clear through the election. The republican senate makes way for change. Investors should look at their portfolios to see which one will be the winners. This will not be a trade but a long term investment. With the rate move in December it was not a front page story. This is a positive thing for the economy and the equity markets.

Healthcare Stocks. He thinks the sector deserves an equal weight in any portfolio. The market does not know how the Affordable Care Act will settle out. He thinks in the end there will be more insured healthcare in the US in one form or another. He would go large in the insurers. He likes biotechs rather than pure pharmas. He does not like device makers because of pricing pressures. Also beware of one-product companies.

Large Tech Stocks. He does not use ETFs because he is an active manager and buys the individual stocks. Tech stocks offer a good opportunity. He thinks it will wane a little bit. A number of them have very good valuations. They are a good long term hold.