A Comment -- General Comments From an Expert (A Commentary)
COMMENT
The markets will continue to rise because Trump will continue to pressure the Fed to print money; Trump needs to fund a lot of infrastructure to get re-elected. The IMF has warned that America won't bail out the European banks during the next crisis and he feels that Trump won't. He feels gold will rise in price; since April 1, gold has become a tier-one asset again, not since the 1970s. Gold has been physically flowing to Asia and Russia. China has transferred 18,000 tons of gold since 2008 to its banking sector. So, if we see another crisis, then China raise the price of gold just like Roosevelt did in 1933. For Trump to really succeed, he needs to kill the value of the USD by restructuring the monetary system through gold with international help. Who? He thinks China will help through a currency re-structuring.
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Market. He wanted to wear a red gold shirt! Everybody he golfed with over the last 6 years said Tiger would not come back. The US banks have had a choppy set of results. JPM-N had positive results. GS-N had some issues on the trading side. We are very late on the cycle. You don’t want to be overweight on the banks. Financial services don’t do well if the next phase of the cycle is slow down and eventual recession. The only question is when, but you won’t see it in the data. When volatility is up, banks should be doing better, but it means that GS-N may have made some bad bets.
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Educational Segment. Retirement ages. We have this massive unfunded liability. The liability is that as we age, the government owes benefits. If the US does not change what they promise, by about 2035, they will have to borrow money just to pay the interest on their debt. Canada is much better off than this, we have the Canada Pension Plan. But now we have many less people in a working age range, vs. past the retirement age, than when the program was created.
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Market. PMIs around the world have been down for 10 straight months, but have now turned. He thinks people will be quite surprised in earnings season. Base metals are one group that has showed strength, along with energy, and technology; and China is looking good. The low was at the end of December. Base metals are a good proxy for global growth. The US dollar is rolling over and this benefits the debt of emerging economies. As long as the US dollar keeps going down it means the pro-global growth trade is in effect.
COMMENT
The Alberta election is tomorrow and we have a shortened trading week due to Easter. It looks like the Conservatives will win in Alberta, but Notley did an admirable job running the province. We'll see conservative premieres across Canada lobby Trudeau to build pipelines. He's positive about the Canadian economy, certainly compared to last December. He wasn't surprised by the sharp recovery. Now, it's uncertain: are we in a slow-growth economy or tiptoeing to recession? The answer: nobody knows....JP Morgan is more of a barometer for the US economy than Goldman Sachs...He expects Canadian bank earnings will be good, despite what an American short-seller thinks. The Canadian housing bubble has softened already, especially in Vancouver. Banks and financials are steady and safe. If you can take more risk, buy during market pullbacks.
COMMENT
What drives the price of gold? That's the most perplexing question he is asked about investments. He doesn't know the answer, but he owns gold and FNV-T, though the miners, which are risky. Gold moves inversely to the USD, so gold it's currently stuck at present levels. He's constructive on gold because the Fed has pivoted away from being hawkish, so interest rates won't rise and nor will the greenback.
COMMENT
General thoughts on preferred shares? Yes, he uses them, viewing them as alt-fixed income, meaning they're not as secure as a corporate bond, but they offer higher income prospects because they pay dividends, not coupons and so are better-tax in taxable accounts. But each preferred share has its pros and cons, and they are not deeply liquid, so the institutional money isn't there. They can be very over- and under-valued. But he buys-and-holds preferreds for the income.
COMMENT
Market Outlook. He thinks world growth is looking like 3.3% in 2019, but there are still a lot of clouds on the horizon -- including traded wars with China. But he thinks this topic will be dealt with positively in the coming months. He thinks US housing is improving too. Oil has moved back to $64 and the oil stocks and service stocks are gaining momentum.
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Market. The announcement on Brexit that it is kicked out to the end of the year and then there are constructive comments on the US / China trade relations, which are the two biggest clouds over markets. The big test now is what the earnings will look like. Next week we will know if the market was overextended when it went down in December. We have to see decent earnings for markets to continue going up. Guidance is key and the markets might be somewhat forgiving. JPM-N is not performing as well as the US market. He has fully exited the US banks. He sees the earnings environment tougher because of flattening yield curve. Interest rates have collapsed over the last three months that that is not good for banks. Canadian banks such as CM-T could be down 10% because of slowing credit growth in Canada. You have to time it right in getting out of this trade.
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