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

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.

Markets. There was some geopolitical risk priced into the market before today’s events. Once we know more we can see how it unfolds. If these events hit North America people will react more negatively and so will our markets. Geopolitical risks are ongoing and we have to live with them as investors. Pre-Trump there were interesting things happening. Employment and personal income were picking up. What we are about to see is a major change in investor Psyche. The value of homes are now back to where they were pre-crash. It is possible that Trump will succeed beyond our wildest dreams. There is deregulation, repatriation tax cuts and a reduction in corporate income tax that will bump S&P earnings one time. We could be in for a very bullish two or three years. The bull market is over for the fixed income market. If the US$ does get stronger then it will dissuade the Fed from raising rates three times next year. You will see damage to your fixed income portfolio, however.

Gold. He is a long term bull on gold. We are creating more and more debt in the world. You have ongoing liabilities from pensions. Short term, however, gold is not going anywhere. You should have 2 to 3% of your portfolio in gold at all times. Eg. CEF.A-T

Fixed Income Market. Should you sell off bond funds? He would not stick around. Take the money and run. Look at high dividend paying stocks. Rates have been coming down since 1980. Now rates will have to go up.

REITs. Rising interest rates should whack REITs but keep in mind that the key with REITs is how well the rentals are doing and the length of the leases compared to the cost of money. The closer you can match the maturities to the leases, the better off you are. HR.UN-T is one of his favourites. They are shedding less interesting properties and buying in the US. CSH.UN-T is another favourite because of the demographics.

Canadian Lumber. Lumber stocks have been under pressure because of the likelihood of the imposition of duties of 25% from the US. There is a counter view that the market knows about and has discounted this position. He would not buy them, however.

Market. We have had a really good run in the US market since Trump won the election. The international markets haven’t participated nearly as well, and more importantly, the currencies have been very, very weak. There are 2 things working in the US$’s favour. 1) Trump and his pro-growth strategy and 2) the Fed, which has changed the picture a little by saying there are 3 interest rate hikes coming up next year. The market has been fully anticipating 2 hikes, and by saying there was going to be a 3^rd, that added to strength to the US$. Global currencies will be weaker than the US$. Ultimately that helps international and Canadian companies that are exporting into the US as it makes us more competitive. That is a positive momentum that will build for foreign companies selling into the US. The market has been anticipating pro-growth. We are seeing the moves in resources, financials, and in the bond market. He doesn’t think it is in anyone’s interest to have a trade war, so is doubtful if Trump will introduce 45% trade tariffs with China. Expects he will backtrack on more of his promises, and things will quiet down. He is optimistic on what he is seeing out of Europe. There is no flow of funds into Europe, so investors are really ignoring what is going on. However, he sees a lot of positives. Leading indicators have been turning up and lagging indicators look reasonably good. The best thing about Europe is the base affect, with very, very low earnings and growth, which provides a base to grow from. The election outcome in France is going to be benign, and thinks Merkel in Germany will be able to form another coalition government, so he thinks the risk is on the upside for European politics.

Japan? The Japanese market looks fairly positive. It has been one of the poorer performing markets around the world until recently. There is a strong correlation, especially of late, between the Nikkei and the broader market, and a weaker yen. He feels that the yen could fall to 120 or lower, which would be good for the Japanese market in the short run. However, longer-term, we are starting to see wage inflation, which hopefully will translate into good inflation in general, which leads to increased spending and consumption.

Market.The result of the election was obviously a surprise. There were 2 things for optimism. One was the Republican Congress that their tax cuts would likely go through, and 2) Trump re-instilled a confidence level that the average guy had lost over the last few years. When he got elected, there was Short covering, and a lot of portfolios were light in equities, so in they came. The system is so locked up tight, there is not very much of a chance that he would unravel this whole thing. The environment is still very positive for the American banks. In Canada, a lot of this has been front end loaded. Banks have had a fantastic year, and will benefit from a steeper yield curve. The opportunity for loan growth is greater in the US than they are in Canada, because Canadian consumers are in a lot of debt. He is sceptical of the ability of OPEC to orchestrate energy prices to go higher. The Saudis still control energy prices and supply, but it is not the cartel that it was in the past. Also, there are 500 million barrels of inventory that it is sitting waiting.

Inverse ETF’s? Why pay somebody? If you are not comfortable in Shorting a stock yourself, you shouldn’t buy inverse ETF’s. Most of these are very big and liquid, and are easy to Short. You could even buy Puts on them.

Energy ETF? He doesn’t have a recommendation, because he is not tilting to energy. There are 2 big ones. iUnits S&P/TSX Capped Energy (XEG-T) and BMO S&P/TSX Oil and Gas (ZEO-T). If he were going to choose one, it would be ZEO-T, which would give you the broadest diversification.