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

Utilities? His favourite is Emera (EMA-T). Fortis (FTS-T) made some big acquisitions and has run up and ran down, and is probably back into a buying zone. These are stocks that you can add to your portfolio, but maybe not more than 5%-7%. There is not a huge potential for growth, but the dividends are well covered, and are increased on a regular basis.

Banks? He would put TD (TD-T) at the top because it has good US exposure. Bank of Nova Scotia (BNS-T) because of its international exposure. Bank of Montréal (BMO-T) because it does have some US exposure. All have good dividends. An ETF that covers banks and financials would probably be a relatively safe way to edge into the market. The banks individually have quite different performances so far this year. (See Top Picks.)

Gold? Canadian holdings have been reduced to almost zero, but China and Russia are holding on. Thinks the bank is wrong on this and that the rest of the world is right. You should always have some gold in your reserve. Gold in general has perked up in the last little while. The basic theory on gold was that unless you had inflation, gold was sort of an afterthought. However, negative interest rates are out there, so that if you invest your money it actually cost you some fixed income investments. Why not hold gold because it at least holds its value? You really need inflation to have gold really running, so this recent run could a short-term phenomenon.

Markets. The economy is indecisive, mostly in the US. For every good number there is a bad number. If we look in Europe they are looking at more stimulus and Japan is turning into a catastrophe. China looks to be collapsing, so the weight of the world is on the US. With the stock market itself, it seems it is taking its cues from the price of oil as a proxy for how things are going. The price of oil HAS to go up. If you look internationally the convictions are not so strong. We have to wash through this whole period. In the near term the markets all depend on the price of oil. Markets are not particularly cheap and he likes cash as an asset. Let things unfold. At times like this the markets come to us, rather than we having to chase it.

Canadian Banks. You can buy and hold and not worry. There is a lot of fussing by Americans about our banks regarding oil and real estate killing them, but in truth they are uniformly conservatively run and they are quite reasonably valued. The dividends will be growing and the balance sheets will be growing. The banks are a good investment.

Canadian dollar. We are not going to $.80 because it would imply a large move in the price of oil.

Gold Reserves in Canada going to zero. The bank of Canada has always held little or no gold. This does not affect the stock market. We are a gold producer and if they want it they can get it. Inflation is there, even if the numbers suggest there is none.

Markets. In Canadian Small & Midcap sector, he really likes the Tech sector right now. Since the beginning of 2016, any kind of more growth oriented stock has been really hurt over the last few months on the kind of “risk off” attitude. There are some good growth companies in the Tech sector in Canada, and this is where investors should be looking, especially those that have been beaten up. Consumer Staples is another interesting sector, but is tough in Canada because it is a very thin sector. Another sector would be healthcare. He covers about 70-75 companies right now, and 90% of them would fit his check list of stocks he likes. The other 10% are just companies he wants to show members that are bad and should be avoided.

(Green energy companies?) Not a sector he usually focuses on. Brookfield Renewable Energy (BEP.UN-T) acquires infrastructure green energy businesses and pays a very nice dividend. Also, look at Valener (VNR-T) which has done well for themselves. Have a joint partnership with a utility provider in Québec.

Markets. S&P 500 had a short, sharp rally, but doesn’t think it has legs and it has taken stocks into overbought territory. In mid-February he started to see the market really bottom. The correlation between crude and the S&P right now is extremely high, the highest it has been in years. Doesn’t have a terribly bullish view of crude, but it has had a nice bounce here. With this little bounce and the high correlation to the S&P 500, this is one reason he can start to see things petering out. While we have moved into a secular, very long-term bull market, you always have cyclical pullbacks. That is healthy. Credit has not confirmed this rally, so he is starting to see overbought territory, and believes we are in for another pullback.

Canadian Banks. News was better than people had anticipated. All 6 have reported and 4 have increased dividends. 4 of them beat relatively convincingly and 2 were pretty close to earnings. If we use the bank sector as a bellwether, it is saying that the weakness in the energy sector and Western Canada has not been as pervasive as we might have thought. There is still a question mark as to what we will see in the next couple of quarters, in particular because of the multiplier effect that the lower price of crude is having, not just in Alberta, but also throughout the rest of Canada. He is currently buying banks aggressively. Valuations are probably more attractive than they have been any time since about 2011.

Interest Rates. Negative interest rates are stupid. They increase risk because they are effectively forcing banks to lend money, perhaps to organizations that they wouldn’t want to. Rates are so low to begin with that if corporations want money they can basically go and get it. Also, feels it discourages savings to some degree, and savings are effectively an insurance policy. Governments want people to spend more money which is silly. It makes companies produce more than what they normally would, and to expand more than they would, which has created gluts in certain areas. This is new economics that really doesn’t make sense, and is more likely to lead to a recession.

Gold? A year ago he was buying a lot of gold companies. Right now has been selling some. Often, before PDAC (a mining show starting this weekend) gold stocks seem to really move. Doesn’t know if there is a relationship, but thinks that maybe there is. Finding a good gold company with low debt is difficult to do.

Canadian Banks? Have been reporting fantastic earnings, record ones in some cases. The economy is supposedly not doing well at all, but banks are making so much money that there is a disconnect that he doesn’t like. They keep raising the dividends, which he thinks is a mistake. They should be paying down some debt instead. Banks have got into trouble before, and that creates dangers. If you have dangers in the banks, that means major dangers for the economy. He would be wary of buying common shares at this point.

Market. The market has been pretty hectic this year. Started the year with a huge drop and almost looked like a potential recession in the US, which was scary. There really wasn’t any economic underpinning for that, so it is now bouncing back. We are now getting back to a better footing. There are definitely legitimate concerns, which is why he is not looking for a rock ‘n roll year. You should be looking for more mid-digit sort of returns. The US is clearly on a growth path and the employment picture was very, very strong, and as a result the Fed was able to raise rates. Doubt if they will be raising rates too many times this year because of the slow growth. When picking names, you want to be optimistic and judicious in something you are comfortable with, and if it went down 10%-15% you are comfortable having bought it.