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

Canadian market. Canadian investors have had a lot to grapple with, for example Trans Mountain and NAFTA. Our markets have not moved. His buy recommendations are motivated because things are cheap.

Market. Emerging Markets. They were very important a year ago for portfolio strategists. Now, the US has done well and the emerging markets have really suffered. Sometimes what did work will continue to work. He sees a year later that emerging market assets have become more expensive. Volatility is more pronounced in the emerging markets ETFs. The FANG stocks have been rock stars. There is a tendency to leave the capital there but you have to understand the risk. Investors should not place too much complacency on certain names just because they have been okay to date.

Principal protected notes. They are often abrogated products that often tend to be a partner product for those selling them and then buying them. You have to look at them for the possibility of making money and the probability. Many investors don't understand these investments.

Market Outlook Some companies are being beaten up because of the NAFTA uncertainty. Some sectors seem abandoned. She is fully invested in the US. She doesn’t own any Canadian cash. She has shorted some stocks like Saputo Inc. (SAP-T) but she can’t short all the names that could be affected. She doesn’t think that we are going to have a great day in the Canadian stock market. But to her, this would be a buying opportunity.

If you have 20% cash, where do you put it? - 20% is not that high. Historically in mid-term elections you have a weak period. October could be a sub-par month. Maybe you want to keep until later and then revisit it. She is in US dollars now.

Market. The S&P500 rally will event eventually and he thinks we are starting to the late cycle signs. The FOMC is starting to show hawkish signs, so he is starting to look to hunker down with stocks with good dividend yields. As short term bond yields go up to maybe 2.25% thanks to the FOMC, the long term rates are not moving up the same.

Marijuana Stocks. He is not in any marijuana stocks. He thinks this sector has all the hallmarks of a classic bubble story. Maybe Canada will be a first mover in the space, but he thinks it is too early to invest significantly. He points back to the Tulip bubble and tech stocks of the 90’s as examples. Most of his clients, who have liabilities to cover for at least another 20 years, he would be nervous on this sector.

He's bearish on the Canadian market. The CAD has been trending since its 2010 peak. He expects more USD upside, but forecasts low-$70's for the CAD within the next 12 months, though there will be a few rallies. The trendline to crack 80 cents hasn't happened. He sees 10% upside for the USD against world currencies. He's bullish US markets.

Market. No one knows how the bull market will end. It is always something that comes out of the blue. Sometimes the cause is internal to the market: the market “got stupid” during the dot-com era and it all fell apart. Other times, the cause is external. Even with 2008, people saw problems coming but no one understood how severe it was going to be. A bull market doesn’t end because stocks are overvalued. But when it does end, the overvalued stocks are the most vulnerable. Politicians like to take the credit for bull markets but they rarely have much control. Super-stimulation of the economy has an impact, but it can’t last. Similarly, very bad policies can sometimes bring down an economy, but usually the political effect is limited. A trade war, for example, drives up prices, which causes inflation. To counter the inflation, the central banks raise interest rates more than they had planned, and inevitably they go too far, and that drives the economy into a recession. There are reasons for trade disputes between the United States and China, but ultimately, spreading trade wars are the worst thing for the economy. At the moment, there are threats (like the ones against Canada) and skirmishes (like the ones between China and the US). If this escalates into a worldwide trade war, the effect will be like the 1930’s.

Comment on Utilities. In response to a question about utilities he said that he owns some utilities, that they are appropriate for clients who need income. However, it is important to limit exposure to them when interest rates go up. Investors should hold fewer of them when interest rates are going up and more when interest rates are going down. At this time, it is early in the cycle of rising interest rates, so utility stock prices are likely to drop further. Most utilities raise their dividend annually, so the yield will rise as the investor holds them. It is reasonable to continue to hold them but unwise to buy more of them until interest rates stop going up.

The U.S. market has been resilient, despite NAFTA worries, China-US tariffs and Brexit falling apart. There are muted reactions to all this noise. Surprising. His strategy is to stick with a stock as long as he can, and let price tell him which direction the market will go. Use stop losses to get out of a stock. He'd like to see more convergence with the rest of the world where emerging markets are down. There's a little softness in the US dollar, and maybe EM has hit the bottom. US Fed Reserve announces interest rate tomorrow at 2:00 pm EST. His portfolio is 50-55% American. It's an American story wth pain outside, around the world. Slightly altering the balance between CAD and USD has been a better thing to do than hedging. A lot of ETFs hedge, in fact.

A global oil ETF? NXF-T is a covered call. It has the 15-largest non-Canadian oil stocks equal-weighted. It's done well because of volatility and currency. Also, the NXF-T. Oil has been up since the Sunday OPEC oil meeting and some excitement. We'll see if this is a head-fake or a real trend.

Do you worry about record levels of debt among households and businesses? It worries him, yes. How the global community coordinates and keeps on top of debt will be really important. Nobody in 30 years is used to raising interest rates and bond yields. The repositioning of trade is very odd; if the U.S. gets even stronger, it will have ramifications in emerging market debt and their ability to repay it. These are the icebergs we face. They won't go away, but they better shrink. He doen't think we will hit them.

How many ETF's should you hold proportionally in a porffolio? He owns ones like LIFE-T. It's a catch-all of all the innovation. ETFs are an amazing invention, a democratic way to play various areas. But he doesn't use a broad ETF to cover, say, the S&P 500 or TSX. There are always some stocks in a market, like the S&P, that he wouldn't touch. Maybe that works in a $10K portfolio, but not a larger one.

Would you wait until NAFTA is resolved before buying a car parts maker? This reminds him of Facebook; you need negativity to give you buying opportunities, but this is premature. If NAFTA falls apart, then the Canadian dollar and the auto-parts makers get hurt. If it works, they go up a lot. What will make a bigger impact on your life: making 10-15% or losing that much? He himself doesn't want to lose, so he will wait.