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

What are the pros and cons of preferred shares? They trade like very very long bond and are interest rate-sensitive. Pro: Inflation protection. Rate resets preferreds mature in 4 years that the company can extend for another 5 years. Consider, What is that reset spread? How competitive is it? These are perpetual; a company can keep them going forever. Make sure they are generous to investor terms. He owns a lot of these for clients. They are fixed income proxies and inflation adjusted for interest rates. They pay dividends and are eligible for the dividend tax credit.

Defensive vs. growth stocks? Defense has done well lately. He still likes AQN-T and Fortis, though he trimmed the latter. Why? If the market corrects further, then Fortis' price won't hold. But these stocks will be pressured by higher interest rates. This correction won't last forever. Essentially, he's trimmed the best names and reinvested in the laggards. If interest rates continue to rise, then go with growth.

Market. The Fed has been the backstop for the market going down. Now they are raising rates unless something else comes along or goes wrong. We saw the peak in September in the S&P as well as the TSX and then we had a correction take place so that we were down for the year. If we can hold above the lows of earlier in the year, then we will be okay otherwise we are in for a bit of trouble. The TSX is at 2014 levels now. Just because the index is lower and underperformed the S&P does not mean it will outperform the S&P. He manages HAC-T (Seasonal rotation ETF) and it has outperformed the TSX. He still has a fairly large chunk of cash. We are coming up to that 6 month period where the market tends to perform well.

Canadian Banks. Rising rates are good but at a certain point in the growth cycle, near the end, loan growth slows. That is what it taking place now. Canadian banks have not benefitted that much given rate increases. Seasonally they should be strong from August until December. As the interest rate stabilizes, it is something he could go back into.

TFSA – What to put in it. The US market is outperforming right now and it could last a couple of years. Over the longer term, you want to look at a worldwide index. If you only want one ETF then you want all the countries. Covered call strategies are great for extra income but if you want long term growth use a non-covered call type.

Market. Not uncommon this late in the cycle to see this type of volatility. Gives investors an opportunity to buy some of the stocks that were hit hard. Seeing a shift from tech into utilities and more defensive names. He doesn’t see a case for recession until 2020. He is long on equities, probably more in growth and cyclical. TSX is down 8% year to date. We have lost a little competitiveness. There are still a lot of good companies in Canada whether it is financials or utilities. Was probably a good year to hold more cash. If you are a long term investment, it is just a blip on what should be a longer term up.

Government commented that Canada is operating at near capacity? Economy is not yet firing on all cylinders. We are seeing some economic growth but not as strong as it should be. Seems to be a tale of 2 countries between the east and the west provinces. With respect to energy, we are over supplied and cannot get our product to market. He would look at companies that have some refinery capacity in the energy sector. He would just have a small or building position in the energy sector.

The Bank of Canada just raised interest rates and said that the global economic outlook is okay. But high debt loads are a concern here and everywhere. Emerging markets are having trouble repaying their debts (especially in US
dollars). We're getting to the end of the cycle, so let's hope that the result isn't as damaging as the collapse 10 years ago. That said, cycles may be getting longer; in the early years of this recovering it didn't even feel like a recovery. The
higher U.S. dollar creates stresses around the world. This is a time to be cautious in the market.

Today was a rough ride for stocks. We've reached a turning point in sentiment, that's for sure. The markets took out the lows. We're in the middle of a correction, just like in January. The lack of volatility has lulled some investors. We're not out of the woods yet. The TSX is down 8% YTD. Maybe we could rally by the end of 2018, but to recover that much is a tall order. He expects Canadian earnings, coming in early November, to be good. The US Midterms are in two weeks, a time which is usually good for American stocks. He thinks the Midterms are a wild card. Maybe the Democrats will win, though polls have been wrong. Canadian interest rates went up today. That's the right move. Unemployment is at historic lows and inflation is still contained. Low rates are not needed anymore.

DOW is down 300 points at the opening today: It's a broad sell-off. The long-awaited correction is happening, but a correction never feels good when it happens even if you're expecting it. The market needed to sell off. It's a cleansing and good to get out of the way. China-US trade uncertainties and the US 10-year yield is over 3% are among the long list of reasons. The volality is the price we pay as investors. But it's uncertain that corporations will spend money with these ongoing trade tensions, thus freezing corporate investment. The S&P is barely up this year, but investors won't feel any gain. The TSX suffers pot stocks sell-off which is inevitable. They are higher beta. But even if the market wasn't selling off, cannabis would still come off--a correction in cannabis was due.

What's a long-term dividend play? Spread it among the Canadian banks but not just one. This lessens risk. CIBC is the cheapest. Also buy BNS because they've been beat up and the price is low, then RY or TD for their US exposure,

Market. The fact that the Central Banks are raising interest rates is causing lots of volatility in the markets. More in the US than in Canada. Household debt is extremely high in Canada. If the US economy starts to slow down the Fed will change plans, otherwise they would stick to the trajectory that is now. He doesn’t see a recession in the US for at least a couple of years. Canada is probably more likely given the household debt situation and the Energy sector. But he doesn’t fear that scenario now as interest rates are still at relatively low levels.

What is best to hold now, perpetual preferred shares or rate resets? Very much depends on your outlook for interest rates and the quality of the preferred shares. He sees them lifting another 1% - 1.25% from here, so he prefers the resets. He suggests having the near duration resets and a few perpetuals. It is a timing game. Tricky.

What bond do you recommend for a person that wants to deploy cash? The bond market is tricky in a rising interest rate environment. You should stay short duration in this situation. It depends also on what type of risk you want to take.

Can you recommend a rate reset preferred with a minimum yield for conservative investors? He has many options, but he would go to a BCE Inc (BCE-T) but also he would look at an ETF as well.