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

Oil Stocks. Western Canada needs around $60 oil to really work. In Cdn$ terms we almost hit that about a month ago, and that is enough to make people feel good and to believe that it is no longer a total disaster. Then the oil price slips, but the feeling is an awful lot better. But it doesn’t mean that we are actually off to the races.

Gold. There has been such an amazing move in gold. He likes to look at this in Cdn$ terms, and we are really at all-time highs. If you have your gold mine in Canada with the Cdn$ costs, you are very profitable and you had a good run. Shouldn’t be too overenthusiastic.

Markets. So far we have seen pretty good earnings from some of the companies that have reported to date. Overall he is happy and, if anything, has probably seen a bit of an earnings trough going back a quarter or 2. Starting to see some acceleration both from revenue and earnings across the board. Valuation on Canadian banks, especially when compared to the US, are sky high, and is something he is watching, but feels we will see some kind of pick up in inflation going over the next 12 months which will increase interest rates and which will be positive for bank earnings.

Gold. Thinks the world is going to look at central banks and realize that they don’t have full control the way most people think they do. As a result, gold is probably going to become a currency, not just a commodity. At the same time, you might also see the US$ being strong.

Markets. The S&P 500 is showing wide divergence in stocks, more than is historically normal. A lot has to do with different central-bank policies and the secular changes in the economy. The US$ is going to continue to show strength against other world currencies, because the US central-bank is ahead of everybody else. The European Central Bank and the Bank of England are in a very expansionary monetary policy mode. Bank of Japan is considering “helicopter money”, which could consist in part of having the government issue bonds to the bank of Japan with no maturity and zero interest rates.

Gold. The argument for gold on the basis of negative real rates is valid. Gold has certainly been tracking real rates. In an environment where it costs money to put your currency in a bank, gold is pretty attractive. Money printing is one of the core arguments for holding gold. It is a purchasing power hedge, and has been for a long period of time. When you look at what is going on in the US, M2 is growing at 6% a year. There are not many periods in history where you can go back and see where you have been printing Fiat currencies at that type of rate, without having some type of inflationary response down the road. Gold is a purchasing power hedge that protects investors from that depreciating value of currencies. He doesn’t see gold going back materially, and sees this as a buying opportunity.

Platinum? A good portion of demand comes from industrial applications. It is a little bit like silver in that you not only have to get the monetary component right, but you also have to think about what is going on with industrial demand. At the moment, most industrial demand comes from automobile catalysts, typically diesel. With the scandal on Volkswagen and diesel admissions, there is the expectation that demand for diesel in passenger vehicles will go down. It is also hard to be positive on platinum demand for autos in Europe.

Markets. Trump is ahead of Hillary according to weekend polls. We will see after this week if Hillary is still gaining momentum. The majority of earnings on the S&P will be in by the end of this week and they are better than expected. There is a lot of potential for growth over the next couple of quarters, but there is also room for disappointment. He is worried about a correction up to 20% over the next 6 months.

US Stocks and Bonds. Caller is 75% US. The world is a little over 50% US. He likes being overweight in the US, but he would like to hedge against the currency risk. You can also be overweight Canada to get the dividend tax credit. He would be looking to trim the US exposure.

Canadian Banks. He would start liking them 10% lower. We are at the upper end of the trading range. He would hold through ZWB-T, but when it got 10% lower.

ETFs vs. individual stocks. The biggest difference is diversification.

Educational Segment. Concerns about the weekend’s G20 meeting. They are agreeing to continue spending and not worrying about who is going to pay for it. We need the growth pickup in the world, but the problem is the debt getting bigger. 150% of the world’s GDP has come from debt since the Lehman moment. You can’t stimulate by weakening your currency, but that is what they are doing. Infrastructure ETFs are very expensive right now.

Markets. Valuations in the US are rather high and that is caused by ‘free money’ and bonds that pay no money. He finds potential in the perpetual preferred market. You get premium yields and if rates don’t go up any time soon you don’t get hurt by them.

Markets. This has been a very unprecedented spring and summer, so far, with all the macro events. Now people have been bitten by the equity market, especially in Canada with 3 pretty significant down markets in the last 10 years. He is trying to generate a sustainable total return for his clients, by focusing on the return he gets in cash every year, which is a dividend. Whatever else the market gives for the rest over time, he is selecting good quality companies with sustainable businesses. He continues to average clients into those stalwart dividend paying names, banks, telecommunications, energy infrastructure and utilities. Utilities and telecommunications are the ones that are in the spotlight right now because of some pretty abnormal valuations, but when you compare their dividend yields to Canada 10 year, the spread remains abnormally high. He has been on the thesis for a long time that both demographics and interest rates are going to drive money into dividend paying stocks.

Car part makers? Car part manufacturers went on a pretty fantastic run over the past 3-4 years prior to last year, and then they checked back. This is the nature of this industry. He continues to watch these companies, but is waiting for a little bit worse economic time.