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

Forestry stocks? The lack of an agreement with the US on softwood lumber is an overhang for all these stocks. The longer it drags on, the worse it gets. Eventually there will be an agreement and a lot of the duties may be refunded to the companies. You should look at the fundamentals of the market such as the US housing market, which he believes in, along with exports to China.

Market. Feels we have ultimately begun a bottoming process in interest rates, and that the bond market has made a turn and rates are likely to go higher. For 30 years rates have been coming down. When people get very used to an asset class doing well, they pour a lot of money into it. Over the last 10 years, that was accentuated. As rates “slowly” work their way higher, money slowly comes out of bonds and into equities. He believes we are in a long-term bull market for stocks. As those changes take place, you are going to get moments of dislocation and sloppiness, but ultimately all of the pieces are falling into place to support that, and this can go on for years.

Why should Canadians invest in Canada? As you are living in a home currency, the Cdn$, there is some reason to have assets here. However, the Canadian market is relatively small on a world basis. Canada is very attractive when you are in a commodity cycle, which he doesn’t believe we are. He would prefer to be in the US, because the economic backdrop is pretty constructive and solid, but would also look at some other countries. He is about 25% Canadian stocks in equity portfolios, and about 40% in income portfolios.

Why is there fear of a .25% increase that the Fed is supposedly going to make? Emotion comes from somewhere, in markets over the last several years have had lots of volatility. Starting in 2000 investors lived through 2001-2002, through 2007-2009, and a big correction in 2011, etc., etc., and all the while below trend growth. A body of pessimism has been built around markets that has been born out of many years. That has happened lots of times before. The obvious reason why Central Banks are careful about raising rates, is that they have felt that the economy and the economic recovery was somewhat fragile and halting, and so people want to make sure that they don’t choke that off. By the time a central bank does raise rates, no central banker wants to be blamed for derailing an economic recovery. Amongst market strategists, the supposed experts, there is almost uniform bearishness, negativity or caution on behalf of them, but if you go back over the last 30 years, and any time there was such a consensus view, the market was up 100% of the time over the following 12 months and averaged 27%. A tempest in a teapot. They should get the rate reset done.

Stop losses. He uses stop losses on all his positions. There are many ways to do that, such as a moving average or a percentage. Every equity has its own personality, some much more volatile than others. He tries to identify inflection points where, due to changing behaviour, it is obvious that something is changing. He uses a “point and figure” price chart.

Market. We had a very robust summer after BREXIT, when all the central banks stepped in and adopted a very accommodative monetary policy environment. Then there were some hawkish comments from the Fed, some weaker economic data indicating that things were possibly faltering a bit. Also, if rates have to start moving up, will that foster the recovery? She doesn’t think so. One month does not make a trend.

Markets. The mixed signals about an interest rate hike for the US last week were from a non-voting member so were downgraded by the market. But the markets will now be hypersensitive for the next couple of weeks going into the US election. Oil dipped below $45 today, but for the next couple of months we are into the shoulder season for oil. Last week we had a big shock in oil inventories as storms delayed imports of oil. Inventories should continue to rise into the first quarter of next year. Oil equities should track oil to a greater extent with the increased market volatility.

ETFs and Liquidity: How do they liquidate in a panic? They are no different than a stock. ETFs have the liquidity of the underlying stocks.

Gold, now that we have volatility in the markets. He has been trading gold in the current range. Gold is starting to break down a little bit. If gold breaks $1300 we could see a dip to $1200. You want to start buying dips. In ZJG-T, there is support at $10. If we get a break below that we will get a lot of panic selling. Consider buying into the panic selling. There is upside in gold over the next year or so as a flight to safety.

US Interest Rates. There is a moratorium on Fed chatter from members themselves 1 week before the announcement. The Fed has not for many years, raised rates if the market was not anticipating them by at least 50%. The market feels there is a 28% chance of an interest rate hike.

Distribution of Capital. It usually means that something happened in an underlying stock. Perhaps a merger and a capital gain. It could be you getting some of your own money back.

Educational Segment. Increased Volatility Coming to the Markets. There are lots of ways to measure it. One way is to use the Bollinger bands. It uses 20 days, or about a month. The spread got down to below 2% for the longest period in decades recently. We had ultra low volatility. In history all the times it has fallen below 2%, we are in for a period of a market correction. It does not help us to know how long the correction will be. He believes it will be at least a couple of months.

Markets. The POT-T and AGU-T merger will be exciting. The commodities have been hurt. They want to put together their mining assets and distribution assets. They may have to sell off some assets to keep regulators happy. The farmers may not be happy, feeling prices may go higher. If we get synchronized global growth, then metals can pick up. Gas and oil have positive fundamentals. Supply and demand are starting to balance. In 6 months we should be balanced. Saudis have not increased exports in the last 6 months as they are simply consuming more internally with air conditioning and so on.

MLP stands for master Limited Partnership, like the Royalty trusts we had in Canada a few years ago. They are obliged to pay out all their earnings except for ongoing operations and Cap-X. They are high yielding and stable vehicles. You are paid an income that is not treated the same in Canada. You are having US tax withheld. You lose a third of your distribution. You would have to file taxes in each state the MLP operates in, in order to get your taxes back. Not good for a tax sheltered account. The guest’s company has a plan that can convert it to a return of capital.

New pipelines impacting existing pipeline infrastructure. Pipelines are a big part of our economic engine. They will get built. Takeovers will happen and increase economies of scale.