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

A dividend ETF with some growth for a retiree? If you are a retired person drawing income, then he would look at something like the Premium Income Corp Preferred A (PIC.A-T). However, if you are looking for dividend growth, you could look at iShares Cdn Dividend (XDV-T).

Strategies behind selling Puts? This is an interesting concept. If you were selling a Put, what you are really doing is taking out an obligation to buy an underlying security at a specific price. EG. If he sold a Put option at $110 on a stock trading at around $111 today, all he has really done is committed to buying the stock at $110, and he gets a premium for doing that.

Options versus Leaps? The problem you have with Leaps is that the liquidity is not as strong as it is on shorter term options, and the Bid/Ask spread can be quite wide. Rising interest rates won’t have an impact on the premiums as a whole. The only impact it will have is the value of a Call relative to a Put, which is nothing more than the arbitrage which creates the structure that allows you to take a position with Calls or Puts in exactly the same position. If he buys a Call he is going Long, it is exactly the same as buying a stock plus a Put to protect his downside.

Markets. He is a picker of asset classes and countries. The US election was viewed by markets as the outcome being very binary. Then look what happened. The markets did not tank. Both candidates were united on fiscal expansion. Both platforms were built on massive spending. He would challenge the view that people should overweight US equities now that Trump has gotten in. That stock market is one of the most expensive in the world. There are better opportunities elsewhere. New emerging market crisis have not materialized. Emerging markets have already had a big slow down. He is bullish on emerging markets.

Biotech after the election. There has been a lot of damage already to the biotech sector and with Trump it is still wait and see.

He has been rotating out of US bonds. If you are rebalancing away from income you want to look globally. The options are slim for retirees. Look at emerging market bonds. He would not rotate out of the asset class. Emerging market debt space is very attractive. LEMB-N is an attractive ETF.

Market. Everything is going up. At this stage, the rally is getting pretty mature. December is typically a good month. The Santa Claus rally probably came early this year. It is pushing some of the sectors, like financials and cyclicals, quite a bit. If the scenario unfolds as the optimists assume, then he thinks the rotation would be justified, but there is a lot of work to be done yet. Expects there will be a correction early in the new year. The 1^st quarter might be a different story, partly as the market is a little stretched. Also, in last 2 years, the 1^st quarter there has been some seasonal weakness in the US economy, which would be a good place for a correction.

Would you play the US market with the loonie expected to drop? Expects the Cdn$ to stay relatively weak at $.70-$.75 over the next 12 months, but to have something weaker than that, there would have to be some drastic action. He wouldn’t invest in the US just because of that. The US will give you a broader investment choice and perhaps higher growth.

Market. With Trump getting in, we move from a regime of income distribution to growth and going into a period of time of deregulation and strong fiscal policy; moving from an area where everything was bad under Obama, and are now good. He is very, very constructive and thinks we are in the early stages of a new regime. Big money hasn’t positioned for this trade yet. Because we are in a regime change, and going into value stocks, and there is not a large representation of them in the S&P 500, this is going to be a period of time where stock pickers should outperform. You should look for managers that have high active share and are willing to go to areas where there is not a lot of large representation within the S&P 500. Value stocks will outperform growth stocks. Value is determined by “Price to book”. The high ones are called “growth stocks”, and the low ones are called “value stocks”. He likes industrials, commodity companies, and especially financials. This is going to be a global phenomenon.

Precious metals? He is long-term and mid-term bullish on the US$, but thinks it is overbought and is a very, very crowded trade. Thinks the purchasing power (fair value) for the Cdn$ is about $0.80. Every bad thing has been thrown at the Cdn$ over the past 6 months, and it has still hung around at $.74-$.75. He has been accumulating gold and silver stocks below $1170. Gold and silver made new lows when Donald Trump got into power, which was hugely bullish. Feels the US$ was overbought, and that there is going to be a rotation out of that. Also, thinks inflation is coming back, and one of the best ways to purchase inflation protection is through gold and silver stocks.

Marijuana? This is going to provide wonderful income for the government, and at the same point in time it is being legalized globally. It is really, really difficult to pick winners and losers. A very interesting industry with rapid growth, but picking a winner is a crapshoot.

Markets. Seasonality would tell you this is the sweet spot (Dec to May) for North American equities. People have been surprised at the intensity of the rally, however. His view has been that we are on the cusp of a regime change where the baton is being passed from the monitory authorities to the federal government. Stimulus will be dialed back and spending and tax cuts will take over. Having a united house means the table is set to enact substantial policy change. They may not get everything through congress, but he expects a significant portion to get through. Financials, US industrials and energy have been themes he is positive on. The bond market has been in a secular bull market for 35 years. He takes a balanced approach, but he thinks the time is right for caution in positioning the bond portion of portfolios. The era of negative interest rates is coming to a close. There is a lot of money in the bond market in search of capital gains and there is a lot of capital in the equity markets that is chasing yield.

Fixed income over the next year. There are policy diversions between Canada and the US. Canada did not change interest rates this morning. Next week the FED is expected to raise the rate a quarter point. There are expected to be a few more rate increases next year. There is uncertainty in the economy that would prevent the Bank of Canada from raising rates. Global capital is mobile and at the longer points on the cuve, he expects rates to rise in the US. Canada is not going to be immune from that gravitational pull. It will pressure returns in Canadian fixed income. Prudence is the order of the day.

Preferred Shares. He does incorporate them into a number of client portfolios. They are a way to counter the oppressive forces of low interest rates. They have merit in a portfolio. It is very difficult to generalize about the asset class. Each security has its own unique features. Make sure you understand what you own. You should emphasize quality. Income is secondary. He favours rate reset shares.

Marijuana Industry. His approach is to be quite conservative. Some like to speculate in this area but be does not. The recreational use legislation does not yet exist.