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

Market. US earnings numbers looked terrible and expectations became very low, but then everybody kind of beat expectations. Looking through those numbers has been very difficult. A lot of the big tech stocks had very negative numbers, and those sectors tend to be the ones that are growing. Apple’s numbers in China were terrible. The one positive thing is that margins stayed pretty level, and that is because they are cutting a lot of costs. When you see big companies like that miss, it tells us that we are in a much more difficult environment than what people are really thinking about. Big sectors, such as utilities that people are very comfortable with, have done poorly in these last earnings numbers. This indicates that the overall economy is not able to grow as quickly.

Rails? He owns and prefers Canadian National (CNR-T). Rails are a great story. This is a business that has been consolidated. Have moved sideways over the last while simply because of the commodity cycle. As the world plods along here, rails do incredibly well. They are more environmentally friendly for shipping things. The commodity cycle is turning a little bit here, so they are going to be better off. In Canada, we still cannot figure out what we are going to do with pipelines, and the only way to move oil really is through rail, and that will continue to happen. As a sector they are not expensive at these valuations, although the Canadians are more expensive than the US ones.

Energy. There was a sharp rebound which was a little overdone. A little bit of short covering, but as the period where oil has peaked is now approaching about 2 years, he is starting to look at companies that have right sized their spending and CapX, and cut their dividends. On down days, he is looking at certain names.

Markets. He thinks the market is still a buy. Interest rates are going to remain low. The US dollar will continue to ease. A lower US$ means firmer S&P earnings and higher commodity prices. The world is not a great place in terms of economy, but stocks are much better than the alternatives. Cash gives you the opportunity to buy at lower levels. Things can happen. He thinks the market will be higher three months out. 70-75% equity is his recommendation. He thinks Canada is awaking. It has underperformed for 5 years. He thinks capital is flowing back into Canada.

Canadian Banks. Banks don’t cut dividends, payout ratios are low. The stream of income is safe. The banks are a buy right now. TD-T underperformed the group because of the US$. It has a lower dividend.

Markets. We are on a teeter-totter in the sense that stocks are not cheap, but earnings are not that good either. We have seen earnings fail to outperform the previous year, 4 quarters in a row, and the next quarter is predicted to be another of those. We are in an earnings recession and are not seeing great earnings. The market has moved up modestly and is pretty much sideways, which is the way it should be. You want to reward good earnings. The correlation between earnings and stock price is the greatest predictor of where things are going. He is comfortable in a seesaw type of market, where good stock picking is rewarded. We are not totally rolling over as an economy. The economy is slow growth, but progressing. What really affects earnings are energy prices and foreign exchange, which tend to be transitory, not permanent. When that starts to turn around we’ll start to see a positive progression of corporate earnings. (You can look at a blog on his website at www.goodreid.com, where he discusses investing for the long-term.)

Canadian Banks. They will continue to struggle. In the last quarter, delinquency loans went from 10 basis points to 30 basis points, an increase of 3 times in a one quarter period. They’ve gorged on lending consumers’ money, which has been a very good business. He is concerned that with increased capital requirements the banks are being forced to adhere to, their funding costs are going up and margins are very low. He has no exposure to Canadian banks, and a very small allocation to Canadian financials, with none to international.

North American Rails? He doesn’t own any. There are 2 areas that are really hurting the rails right now. 1.) Coal shipments are down substantially and that will be in a long-term terminal decline. 2.) In oil by rail, you are seeing fewer oil cars shipped. That had become a very large component of a lot of the railways in the last 5 years. The only area firing on all cylinders right now, is cars being transported by rail, and at 18 million units per year, you have to wonder how long that will continue.

Markets. There are a lot of seasonal patterns in the market, but the question is how you use them in your portfolio. You can’t depend entirely on them, however. Historically, going back to 1928 for the S&P, there is very little growth in the summer months. You can’t dispute the seasonal patterns, even though they don’t work in every year. Year 4 of the presidential year is often strong in the summer.

Low volatility ETFs. After markets fall, portfolio managers move out of low volatility stocks and into higher risk. Low volatility stocks are trading at a larger premium today than in the past, making them more volatile.

TFSA suggestions for young people. If you are investing for the long term, he suggests going for growth, rather than dividends. When you finally take the money out, you still won’t pay any tax. He suggests a US ETF specializing in small to mid caps.

Educational Segment. Artificial Intelligence and ETFs. The Buzz Index. His guest looks at social media and identifies the top 25 stocks with the most bullish prospects. He uses the power of the computer to scan social media for comments he is looking for. Software uses natural language processing. He also tries to gauge how many people are listening to the person posting.

Markets. It looks like oil went down too far, too fast and is now recovering on short covering. The fundamentals have not changed that much since January, so he would not be surprised to see it roll over here. No one knows where the US dollar is going. He is not increasing energy exposure up here. All the currencies are going up against the US dollar. He spent some money in Canada and is hoping things come off so he can invest more. He only spent a little in Canada. The US is a little expensive. In the US you are getting bankruptcies in energy.

Software. He historically does not invest in technology. He has OTC-T, however. He likes how they are growing by acquisition. It is decent value here and he likes the management.

Oil price over 5 to 10 years. He does not like predicting anything. No one predicted oil would go into the $30s, let alone below. He thinks it will be between $30-$50 over the next few years. Historically, commodities don’t turn quickly. Make sure an oil stock has a good balance sheet.