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

Market. It has been a tough slog in Canada so far this year. Valuation multiples are reaching drastic lows across different sectors. Even after the NAFTA agreement, which is surprising. There is a velocity shock with rates in the US moving at the 10-year term from 2.85% to 3.25%. It takes a while usually for markets to digest this rapid movements. They are remaining cautious but constructive on the market here. In some companies they see 30-35% compression in their multiples with earnings growing at 5%. They feel those are buying opportunities. It feels that money is leaving Canada, but that tide will turn once valuations get to a certain level and people get more confident that things are happening in Canada.

Market. He has expanded his scope beyond resource stocks lately, but because of current valuations he is back recommending this sector again as it is at its maximum pessimism. The US may be considering a tariff on uranium, which could be a boon for some Canadian producers like Cameco.

Gold. It will be interesting to see what happens if inflation becomes prevalent. He thinks, as a pension style investor, you need gold in your portfolio. You need to be very specific on the company stock you buy as some are making cash hand over fist. Smaller niche players may be better than dealing with the major gold producers.

Cannabis Stocks. He wants to see some proof that the new industry will do well. No one has a proven track record yet. The astonishing market caps are very risky. Growing will eventually move to a more understandable agricultural process, but until then he is staying on the sidelines.

Market and yields. Once short-term rate hit 3%, saw some selling. With USMCA settled, he thought Canadian market would do better. Still not much below where we were a week ago. Right now, we’re in a psychologically negative market, though fundamentals remain solid, especially in Canada. The Mexican side is more stable, and this is positive for us. TSX has been underperforming the S&P 500, so we have some ground that we could catch up.

Is there confidence to come back into the Canadian market? Since July, news was negative on NAFTA, prompting investing elsewhere. It’ll be awhile before we get momentum back. Expects the Canadian market to gain some lost ground.

Rising interest rates and jobs. Canadian jobs data showed too many part-time jobs. Can’t translate short-term results into long-term trends. US employment level at 3% is excellent. Still at historically low rates, wouldn’t get too excited yet. Next month or so, tariff impact from Chinese goods could see a rise in inflation.

Canadian banks. Banks have outperformed until recently. Backward movement is temporary. Hold on to your banks. Rising rates are a positive, with NAFTA out of the way, and better prospects for the Canadian economy. If the economy does well, banks will do well.

Ford just announced it’s cutting jobs. Not too surprised, because Ford did badly in sales compared to GM and Chrysler. Looking at where they can make cuts, and white collar workers, and AI, means you can eliminate some bodies. Tariffs were a horrible threat.

Defensive portfolio strategy. Easiest way is to concentrate on dividend paying stocks. Think “cash flow,” such as with BCE, or a utility covered call ETF. May have some downside in the short-term if the market really takes a hit, but in the long run you get your cash flow. These kind of stocks sell off only so far, then the fact that they’re paying a good dividend gives them support.

Market. His open ended cannabis mutual fund is being launched on all popular platforms. He has had huge demand. HMMJ-T: There is a strong seasonality in October to November. Fundamentals are pointing to the sector improving. He has not done any shorting but they are very strict on anything happening over their settlement date. There are huge volumes on exchanges due to cannabis. With some shorts when they settled they were not able to deliver the stock. Buy-ins are artificially inflated.

Canadian oil has disappointed Be patient. It's good value and our oil stocks are ridiculously cheap. They will ultimately go higher. He doesn't know what the catalyst would be. We are seeing alot more rail transport and decreasing supply from Venezuela. This week's LNG announcement in BC is also good news. Investors have left this sector, but they will come back. He's willing to buy cheap oil stocks and hang onto them. Oil prices will stay the same or rise.

What sectors to become defensive now? Cash. Nothing more defensive than that. Histroically, defensive sectors have been consumer staples, utilities, telecoms--they all have little earnings variability. But these sectors also benefit from near-zero interest rates, so they are sensitive to a rise. Energy stocks are really defensive, because you get good valuation support here than from other sectors.

Buy the dip strategy on tech stocks still works? He likes tech long-term, but the big tech stocks lately concern him. Facebook's earnings growth is slipping. Apple is still an iPhone company, so they can't continue to sell high-end products. Money is starting to leak out of tech. Netflix for example. Valuations are excessive in this space.

There was hawkish talk from the US Fed about how agressive they'd be on the fund rate. They say they want to move to the neutral rate, but they don't know what that is. Remember that the February dip was triggered by a bond rate rise and it took us a while to recover from that. We're at the end of the cycle and it won't last for much longer. He remembers a decade ago when the US Fed didn't recognize a housing crisis even though the street already knew, so the Fed is sometimes the last one to know--or they don't want to publicly say and to spark a downturn. Emerging markets have rolled over. China is down 25% and Germany down 12% from the January peak. Canada has underperformed. Only the U.S. has done well, but they are late in the game with high valuations and rising rates. The Fed must normalize rates now.