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

Consumer staples? Portfolio managers have to stay fully invested, and want to get defensive if they think markets are going to pull back. They go into lower volatility names like utilities, some healthcare like big Pharma (if they are not too expensive), and consumer staples. You could use SPDR Consumer Staples (XLP-N) in the US or iShares S&P/TSX Cap Consumer Staples (XST-T) in Canada. Alimentation Couche Tard (ATD.B-T), Loblaw’s (L-T) and Metro (MRU-T) are the big weights in the latter. These are more defensive and likely to fall a bit less when markets correct, but not likely to go up when markets go down.

Educational Segment. Downside of negative interest rates. Negative interest rates are really stealing money away from pensioners and savers. Did a little heat map of the term structure of interest rates going 2 to 30 years in the various countries. Canada, US and UK still have relatively normal yield curves, although yields are pretty much as low as they have ever been. However, in Europe and Japan you’ve got negative interest rates. There are over $10 trillion of government yields with negative interest rates. Last week the ECB started buying corporate bonds, and there is a good chance that some corporates are going to be able to issue bonds with negative interest rates. He showed a 2006-2016 chart of the total returns of the entire US market comparing the history of stock and bond returns. When stocks go down, bonds are generally the offset. The problem in the pension world going forward is that interest rates are so low that in order to get that balance return of 6%-7%-8%, you have to use stocks, but only if you can handle the ride. The volatility is very, very different. If global bonds are going to yield 1%, in order to get your 7% in a balanced portfolio, you have to get 14%-15% in stocks. Where valuation is today, that is not doable. A passive “buy and hold” portfolio is going to be very challenging.

Markets. When looking at both US and international markets, she is always concerned about valuation. She has a very long-term investing style. Right now, the US equity market is looking a little rich. It has hit all new highs for the S&P 500. Has crossed above $17,500, which is the first time since the 90s. That tells her the markets are very vulnerable to any type of disappointment, whether it is of concerns in Europe or China. Valuations are so high right now because the US is the best house in a bad block. Britain looking to exit the euro can be a big concern for Europe. Europe is looking for a big earnings contraction this year, and are not expected to have growth until the 4^th quarter this year, if they are lucky.

Markets. There is a global rally in government bonds, and that is very concerning because there is $10 trillion of sovereign (US$) that are trading at negative yields. That is a significant issue because we have never really been there before. Many people, including himself, think it is because the banks are running out of ammunition. They have done everything to lower rates, even going to negative rates in Japan, which has created a huge problem, and a bubble is essentially forming. We haven’t had rates this low in 500 years of recorded history, so it is hard to see how this ends well. The poor jobs report has set back expectations even more substantially than what they were set back already. The bond issue is something that will affect us all at some point, because we don’t know how it is going to unwind. He is fully invested, but on both sides of the market, and is looking to be more aggressive on the Short side in the cyclical names. Also, starting to pick away at some gold names.

Forestry sector? Stocks are cheap and have been trading down. If you are willing to take a longer-term perspective, at least 6 months, they are all attractive. Expects there will be a solution to the softwood lumber dispute. There is some evidence that the millennials are forming households.

Markets. Looking at the mid-caps that he focuses on, he is not seeing great operational results, and as a consequence is very surprised at how robust the market has been in the last little while, and he would be cautious. He has been pulling in risk, both on the Long and Short sides.

Markets. The TSX has had a big run, which was powered by the 3 big ones, financial, energy and materials. We have just had a correction and he wouldn’t worry about it. It is a normal, healthy correction. The long-term chart showed a low in 2008/2009, a low in 2012 and another one this year. Each low is higher, and now it is trying to break out. A peak occurred in 2008 and a double one occurred in 2015, which are called bull traps. He is sure the low of 11,500 will not be violated.

As a short-term+ intraday trader of stocks below $1, which 3 or more indicators and setups are best for taking decisions? A lot of day traders turned to long-term investors because they got the trade wrong. He would not trade anything under $1 unless there is big volume. If it is trading less than 100,000 shares a day, he wouldn’t touch it.

Markets. When it looked like Hillary, not Bernie, might be the next president then the markets calmed. You could keep the banks, then. She will go forward against the other gent and the Americans are less embarrassed about their citizenship. In the end Brexit doesn’t matter, although he thinks in the end they stay in. These large political events are disturbing just because they are there and they get in the way. He does not know if a Brexit will cut them off from the EU markets. He does not think they should leave. Resource stocks have disproportionately led the markets higher.

Markets. Global 10 year yields have declined because global growth has not really progressed very much since the recession. Inflation is still low, but in the US, pressure on wages is starting to happen, but not enough that the market cares yet. Janet Yellin advised they were going to delay increasing interest rates again. This will probably be delayed until the fall, and may be only 1%. He is more cautious now than he was in January. TSX is trading around 17.5%-17.8% times earnings, which isn’t cheap. That is the top of his valuation range for the year. He is positive on oil prices, although they are a little ahead of themselves now. Demand is still there and growing at 1%-2%. If energy gets up to $55-$60, then he would pare back his energy holdings somewhat. Longer-term he doesn’t see the dividend growth that he probably saw over the last 2 cycles.

Markets. He is guardedly optimistic. Valuations are reasonably full. The market is climbing a wall of worry, probably because rates are so low with some expectation that they are going to stay low and people are being dragged into equities as the sort of best house in a bad neighbourhood. The TSX has underperformed for quite some time and is finally picking up some steam. The million-dollar question is, is that sustainable. Higher interest rates in some instances is probably a better thing. It will allow the financial system to function in a more normal fashion.

Markets. The market has been grinding higher for a while. The S&P 500 1-year number is now + 1%. The TSX, even though it is on a tear this year, is still minus about 2.5%. We have had this on/off, on/off Fed watch with interest rates, which has caused all of the volatility. You have a bifurcated market in both Canada and the US. Sentiment is at all-time lows, so it is creating a sort of contrarian, very surprising “grind up”. Two big mistakes that people made were bailing in the February downdraft, which is maybe why we are not having a “sell in May” phenomena right now, and people feeling that interest rates were going to go up and the US$ would resume its strengths. The key is to cut the big losers quickly and do a little bit of rotation on the side.

Markets. He is constructive on the US economy, and is expecting about a 2% growth this year. Globally the consensus is that it is about 2.5%-3% growth, which is well below potential, but we live in a slow growth, slow inflation world right now. US markets are close to their all-time highs. In the 1^st quarter this year, the S&P 500 had the worst quarterly earnings reporting season since the cycle began in 2009, with a -6% earnings growth and -2% revenue growth. If you take out energy, you get a little bit better than that, but the numbers are still pretty weak. Consensus for the 2^nd quarter is much the same, but apparently we are going to make it up in the back half of the year to get a slightly positive number. There is going to have to be a resumption in growth for the market to take another leg higher in the US.

Markets. Currently he is about 80% invested for clients with about 10%-20% in cash, so if it can outperform the market while this rally is going on, that is great. He does have the cash in the event there is a market correction. This market has been pushed by ultra low interest rates for such a long time that people are either using margin, speculating, or borrowing like crazy. Companies are doctoring their bottom lines by buying back shares and making earnings go a little bit higher, but not really seeing a lot of growth. His focus is that companies must have free cash flow every year with which they could allocate a third to raising dividends, a third to capital expenditures, and a third to capital acquisitions if needed.

Gold. Has had a look at all the gold stocks and doesn’t like the companies. They are very leveraged and the price of gold has to go up to make the leverage pay off. Also, they are high cost mines. If you must own gold, he would suggest a bullion ETF, or just buy gold wafers that you can stick in your safety deposit box.