A Comment -- General Comments From an Expert

A Commentary

Market. A lot of people are calling for an emergency rate cut, but we are at full employment. Rate cuts at this point are pushing on a string. They are not going to work. It creates a miss-allocation of capital and bubbles. The Fed is saying they are considering negative interest rates to stimulate. We don’t want this here. The academics need to really rethink policy. There is an 80% chance of a rate hike priced into the market for July.

Lumber & US Home Builders. WOOD-N trades in the US for lumber manufacturing. It is in a downtrend. There can be a short up tick due to natural disasters. XHB-N plays the home-builders and suppliers. Both sectors have been beaten up significantly. It is not until the recession hits main street that these things bottom out. Anything positive since the last recession is a counter-cyclical really and should be sold into.

Gold. He thinks the Fed is willing to let inflation run hot. He thinks we are ready for a breakout in Gold. It is one of his biggest positions in most of his portfolios. He likes the sector here.

Canadian $. He thinks it will ping-pong from here. Ultimately it will head lower. This always hits the oil sector.

Educational Segment. Market Technicals – Market Breadth Analysis. The tech sector is by far the largest part of the S&P 500 (21.2%). It was 16.8% in 2016. 80% of the S&P earnings growth is from the tech sector. In the S&P 100, 50% of the stocks doing the heavy lifting are tech. The percentage of stocks rising above their 200 day average is declining. The market is being held up by fewer and fewer stocks and this is not a good sign. Weakness below the surface is being masked. It is not a good sign.

Market. Things are beginning to build up and it is time to watch what is happening with manufacturing, employment, and interest rates. Interest rates are not indicating good news down the road. He would not be surprised to see a significant market setback in the next 6 months to a year. Trade wars are having a profound effect on fundamental trade flows around the world. Businesses are beginning to leave China to some extent. This could cause a breakdown in supply chains.

Canadian Railways. He does not have much of a position in either one right now. The multiples are not bad right now. He prefers CNR-T right now for its foot print and the yield. They are captive to what the general economy does to a great extent. He would wait and see with both of them. If either pulled back 15-20% he would take a more serious look at them.

Canadian Forestry stocks. Here is an industry that is in a bit of oversupply. Curtailing production should be good in the short term. We are seeing all of these stocks selling towards their lows rather than highs. CFF is selling at a fraction of the book value. They have had negative earnings of late. WFT-T is 1.5 times book. IFP-T is at book value but has a much higher multiple. WEF-T is trading in the middle of the previous two but with a much more significant yield, possibly not as secure. They all have reasonable assets. They are a decent value play and could stand to do well if we get a building resurgence. You have to be patient.

All eyes on the U.S. Fed now, and it's likely they will cut rates at the end of July then sometime later. It's accomodating for stock markets which make him quite optimistic about the markets. The markets are still trading at reasonable multiples in New York as well as Toronto....Apple remains good value. He's still consolidating core, defensive names and it's working well for him. He predicts that Trump will hold the US-China trade deal through the 2020 campaign, so buckle up. This will drag on long after the G20 Summit.

Should I replace a floating-rate preferred ETF with a US Treasury ETF? No, because the market is pricing in three interest rate cuts this year. The US 10-year is down to 2%. If you did make this move, then you have to time it very carefully, playing it for 40-50 basis points, then shift back into something with protection as yields rise again. He'd rather hold onto that rate-reset amd be ready when rates move up later--and they will at some point (maybe in 6-12 months).

The December low changed his mind about US stocks. It haunts him. He's gone from green to yellow. That said, the Fed is on our side and so is the US dollar. Now, if the US can get out out of its own way (re: China trade deal)... Value stocks continue to implode--they are so cheap.

Edible cannabis and the cannabis space He has no investments here. The space is a little inflated. 10 mg per package is the new limit, just announced. (A joint has 12 mg, a vape 17.)

For gold companies, go with junior, mid-size, or senior? Have to have gold investments in Canada. If you buy the actual gold, only way to make money is for the price to go up. If you own a business, you make money if you end up with more gold than you started with.

Time horizon for beaten up stocks. Two things to think of. One is how much a rate of return do you expect to get, or timing, but don't try to get both. Tries to compound consistently in the portfolio, and as long as that's happening, he doesn't care how long it takes. Be patient, and don't put pressure on the timing.

Market. He is a bottom up fundamentalist. He is not as much focused on the macro. Small caps have underperformed so far this year. They often are not as big a dividend payer. People are pushing up valuations of REITs and utilities. The energy stocks are not doing better as you would think they would do on a day like today. There are a few mining stocks that have done well. As gold prices move up in US$, they are moving up much faster in Canada because of currency. He thinks there is better opportunity in the small cap space in gold.