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

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.

Market. Donald Trump is usually better for business. Business has been restrained for 8 years by regulations. There was a major break out in the US$. For the last 3-4 years, Brian has been pounding the table for the US$, saying that we were going to have a Ronald Reagan rally. The US$ Index under Ronald Reagan went from about 80 to 160 against world currencies. Under Donald Trump, he sees it easily going to 160 from their current amount of about 100 over the next 4-7 years. We are only in the first inning of interest rates going up, and if Trump is true to his word, expect a big bear market in fixed income, and a big rally in the US$ and in US assets, including equities.

Gold. Thinks gold is going down to $400 an ounce, because of higher interest rates and a higher US$ and anything that is detrimental to gold. Looking at a time frame of 3 to 5 years, the Congressional Budget Office is forecasting fiscal spending of $5.3 trillion over the next 10 years. That breaks down to the US government growing the economy 2% per year during that time. That is the US government and doesn’t include the private economy.

Energy. Christmas came early with the November 30 announcement that OPEC had struck a deal. He hadn’t seen this happening. There was a tremendous amount of pessimism going into the November 30 meeting. Even the most bullish forecasters were starting to doubt that something would happen. We had a $6 rally in crude prices. Now it comes down to whether or not members will actually stick to these targets. They also have 600,000 barrels from non-OPEC producers, committed to be taken off the market. Half of that is Russia, and Russia has a terrible track record of keeping their word. Even though the deal was not expected, there were still signposts that suggested the market was going to balance itself at some point in 2017. This deal has effectively accelerated the point at which the markets balance, and can start working through these high inventory levels around the world. OPEC is now producing about 34.2 million barrels a day, and that is up substantially in the last couple of months. He thinks that with this impending deal, there was a race to get production up because producers probably knew that at some point, if the deal was going to be arrived at, it would be based on where their production had been most recently. We don’t need oil prices to get back to $80-$90-$100 for North American companies to really make healthy returns. He looked at some of the individual well economics of Canadian producers at $90 Cdn per barrel. They are generating approximately the same rates of return at $60 Cdn. Currently, we are now more of $70 Cdn, so there are a lot of very investable companies in Canada and North America at these price levels.