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

Markets. The “Lower for longer” interest rate scenario has a huge impact in his investment process. We need to always remember that the value of stocks are not pieces of paper, they are businesses. The value of a business will always be the function of its long-term earnings, cash flow and earnings growth. Just because interest rates are low, as a long-term investor, you shouldn’t be buying things just because they are cheaper than the market, if the market is too expensive. There are a number of sectors that have gotten out of whack. With this near zero world we are living in, people are starting to buy stocks as if they are bonds, and as if dividends will never get cut. No one ever predicted that interest rates would be here. We have never seen negative interest rates before. If these rates continue for 5, 6, 7 years, then owning these stocks makes a lot of sense. However, that is impossible to predict. Obviously when equity prices rise, the risk level rises, and you are better off selling that which is expensive, buying that which has value, and in his view, holding some cash as well. If you are an owner of government bonds, that game is over and dead, and is a recipe to losing money against inflation, even at low levels of inflation. If you hold bond funds or regular bonds, you should sell them. Also, the consumer sector has become very, very expensive. He is still finding value in Japan, which remains the cheapest market in the world, and is the 3^rd largest market globally. He is finding value in US large technology companies, as well as the financial sector, which has been beaten down.

Canadian banks. They’ve done a phenomenal job. Canadian rules make it tougher for them to lever themselves up as much as other global banks. They are all very tied to the Canadian retail sector. If the housing market ever softens, in Toronto or Vancouver, there is room for earnings to soften a little, and probably giving a better entry point.

Markets. There are all kinds of problems in the system, debt is a big one. It is hard to know where to go from here, but it is certainly not cheap like it was 5-6 years ago. He has been doing a lot of selling, taking profits, because it is partially dictated by the markets. If the market is going up quite a bit, his stocks hit initial Sell targets.

Where should I invest if Trump is elected? Can’t really say which stocks would be most affected, but there are certain areas such as China, Mexico and healthcare stocks, which would probably be impacted negatively. Thinks some of the gold buying now is because of him, so if he is not elected, golds may come down to some degree.

Markets. A chart showed the percentage of stocks trading above their 50 day moving average on the S&P 500 index, a very reliable indicator of when to buy when it is overbought, and when to sell what it is oversold. When the percentage is below 25% and moves higher, that is a signal to Buy. When it gets above 80% and starts moving lower, that is when you want to Sell. The chart showed that the S&P 500 peaked about 2 weeks ago, and just went through an all-time high today. That means the market is currently more overbought than it was before. This indicates a time to take some profits in S&P 500 stocks. The chart for the TSX indicates almost the same signals for the same time. Both charts indicate that markets are overbought right now.

Gold. Gold has just entered into a period of seasonal strength. It tends to peak out around the middle of October. A lot of people look at gold in US$ terms, but if you look at it in Cdn$ terms the price of gold broke to a 4 year high earlier this week. (See Top Picks.)

US election year selections? In an election year, when a “new” president is elected, from about the middle of July right through until about a week before the presidential election, the US equity markets move lower. This is because there is a lot of negative advertising coming into the markets, which causes investors to be concerned about what is going to happen, which causes equity markets to move significantly lower. However, once the election is over, equity markets move higher because people feel that with a new president and a new mandate, things are going to get done, which causes equity markets to move significantly higher.

Markets. Oil prices will be good for consumers as well as business. He is generally bullish on the US economy. The basis of his outlook is always pro-US. You have to look at what is the actual yield. He looks at short term government bonds, mid-term corporate bonds but nothing long term. He also looks at a mixed bag of ETFs. It is a bizarre presidential campaign. It will cause some uncertainty. It is hard to imagine a situation where both are detested by their own parties. All you can do is sit back and wait. If you see a stock you like and it is down, then buy it.

Options don’t have any intrinsic value, just time value. Options traders want leverage. As an option becomes more in the money it becomes more expensive.

Call Option Expiry. If you let a call get exercised, you have the stock in your hands, so you should sell the option just before expiry.

Exchange Traded Note, vs. An Exchange Traded Fund. He won’t touch an ETN because it is illiquid. He is not interested in that market.

Investment for an account with no withdrawals for 10-15 years – ETF recommendation including a drip. Pretty much all ETF providers will do a drip. You could buy an S&P 500 ETF.

Moving to US for more Liquidity in Options. There are a lot of Canadian stocks that are interlisted in the US and Americans tend to pay higher option premiums, so you could consider these.

Covered Call Correct Value when stock is not actively traded. You can use the Black Scholes model and that gives you the correct price, but it does not say you are going to get it. It does not tell you what the market maker is going to give you. That is one reason he deals mostly with the Canadian banks where there is huge volume.

Markets. The Bank of England just cut interest rates, which was no surprise. Given the situation in the UK where there is a lot of uncertainty over the next 2 years, he expects to see slowing growth over the rest of this year, and probably into next year. There are going to be low rates there for a lot longer than people think. Brexit is a complicated issue, and the issue of very low rates has very big implications globally, and people are not thinking about that. That also has real implications for life insurers.