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

Markets. There is a lot of negative sentiment in oil. The lack of visibility of what OPEC has done and how it has fed into inventories is what is causing nervousness out there. She is confident that OPEC’s actions will work. With production increasing in the US, it is being balanced by cuts that OPEC has made. We won’t get a lot of growth in oil in the US next year if the price does not increase. She looks for companies that have the best growth and the best plays. There is a valuation gap between the US and Canada that makes Canada much more attractive. A border tax into the US will increase the price of oil in the US and thereby encourage production growth there.

Markets. The sentiment on the street regarding the failure to launch the repeal of the health care act is that the tax changes will also be tough. The big interest is in the mid-term election in 2018. If it is not attached to a budget then nothing is going to get done. The most logical thing is for the market to sell off to where it was before the Trump election. This morning there are dip buyers coming in. He thinks through April we will continue to drift lower to where we were before the Trump election. It is the physiology about how markets work. You have to test the confidence. He did not adjust positions on Friday because he expected it to fail. There is major execution risk with Trump policy.

Educational Segment. It is the 10^th year anniversary of the show. He often gets the comment that he is always bearish. But he thinks he is optimistic. He looks at the risk side before the returns side of investing. Beta is the sensitivity to the market risk. When he is considering buying anything he thinks about the risk index. ZEB-T graph compared to the world index looked at the weekly return and then he finds the trend. The slope of .65 tells him the sensitivity to the world index. At this level about 50% is related to sector risk. He decides how much of the decision relates to the world, or to sector or to the specific stock. XEG-T is the Canadian energy sector, compared to the world it is more sloped, meaning it is more risky. He needs to weigh the macro factors more in this case. SU-T has a lower correlation to the energy sector because there is less risk and that is because of their refining business. Energy is starting to look interesting now.

Markets. We had a great big rally on anticipation of change. The changes are going to take longer to implement than we thought. It is time for the markets to sit back and pause a bit. Going into first quarter earnings season, earnings and interest rates are the two drivers. The US will continue to be the natural ‘go-to’ place.

Markets. He is not concerned about the health care repeal not going through. Stock markets are bullish when legislation is in gridlock. Patience will pay off with other Trump initiatives. There is literally no volatility in the market. Investing in this climate for him is no different than any other climate. A company that is a good investment should not require any particular macro outcome, although it is important to know what could break the investment hypothesis. He picks stocks bottom up, but worries top down.

Why don’t oil producing countries cut production to get the price of oil up? Most OPEC countries over produce to try to reach their budgets. OPEC is not in a position to rebalance the market. There is a lot of production inshore and off shore in the US (the Gulf). There are a significant number of projects that are ramping up.

Housing prices. Historically to break housing prices, you need a spike in unemployment. He does not know when this will happen. There is only a small chance of recession in the US. CMHC has published concerns about the housing market.

Markets. Everyone wants to call an end to this run. We still have an accommodative federal reserve. Stocks are not cheap, but still so much cheaper than 10 year bonds and cheaper than real estate. People are still so nervous of the small or big gains they have had. People need dividend stocks. He does not see a high interest rate environment. Dividends are a staple in people’s portfolios.

How much to keep in Cash? [Caller had two of four kids in University]. You want to be mathematical about this. When these liabilities become certain you want to invest in things that cannot fall down. It depends on your temperament.

Markets. This Monday the Americans may give the green light to the XL pipeline. Oil stocks are still discounting this news. There is a backdrop of international oil companies exiting Canada. Playing XL can only be done through TRP-T and so on and companies that piggy back off them. He thinks we will see $60 oil this year. Any week we will see refineries coming back online that are undergoing maintenance. The market will still be rebalancing in Q3 of this year.

Overweight in the Energy Sector? He has almost no cash in his fund right now. The risk reward ratio in Energy is incredibly compelling. Everything is getting ready to move. It is a case of sector allocation, rather than stock selection. He has moved a lot into the oil services sector. Seasonality is in his favour. It all comes down to US oil inventories. We are days or weeks away from that number going negative. Collective light bulbs in people’s minds will start to go off.

Canada/US Country Allocation. He wants to allocate largely to the US. He is fed up of having to worry about takeaway capacity, phasing out of oil sands, and border taxes. He has two Canadian oil producers and five from the US. They have a higher growth rate.

Fracking Sand. It is not beach sand. It has to be the right size and round. These names have fallen greatly this month. These companies are finding customers are now begging them to add capacity. You can buy a company where the product has doubled in price and yet they have sold off to half their price. (See his Top Picks today)

Natural Gas is always a call on the weather. February was the warmest February on record. He thinks Gas will average $3, or no change. Now is a crummy time to own Nat Gas stocks. Until June there is not really a catalyst to get these stocks going.

Markets. The budget does not make him change how he wants to allocate capital. This is the second budget in a row they talked about this badly needed commitment to infrastructure, but nothing has happened yet. The government should be careful in the future. There was speculation the government would increase the inclusion rate on capital gains, which they did not. Advisors had been suggesting people crystallize capital gains, but which was unnecessary. Don’t make investment decisions be based on tax and legal speculation.