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

All the way through this bull market, people have been nervous. Bull markets die of excess, but that we have been in a cautious expansion. We are in the early stages of a reflation in the economy. There are no signs of recession on the horizon. The market is healthy. Tilray took off today: that's investing, not speculating. He'd be concerned about buying cannabis stocks, but if you have the stomach for it, all the power to you. He doesn't have the stomach for it. Some cannabis companies will do well and others will be wreckage.

Market. Canada has continued to weaken while the US has shown growth. Headwinds in all our three key sectors have continued, this includes consume debt and rising interest rates slowing down financials. The energy sector has been off as political leadership has been lacking. Materials companies cannot catch a bid. Over 70% of our market is doing poorly and for what is left over, there are other companies around the world doing it better. The silver lining is that valuations in Canada have become quite low. A drop in the US dollar could potentially benefit the Canadian market, causing investment to go looking for other markets.

Why are there no trade worries about US-China? Why are were markets were up today? The Federal Reserve today said the economy is doing well. Trade barriers are raising prices in US and China. He thinks investors think this will all get resolved as will NAFTA. Corporate profits are pretty good. Banks and industry are unchanged or slightly down--there's some turmoil beneath the surface. Investors are immune to Trump's bluster and looking to invest--won't invest by headline. Canadian markets have been down the past few years, and the lack of pipelines have been discouraging. Canadian financials have done nothing for the past year, though their profits are rising--this sector looks interesting. Canadian investors should continue to explore America and abroad, though the weak CAD is an obstacle. Canadian capital markets have limited choice.

Why is the Canadian dollar so cheap against the USD? He shares the caller's frustrations. Canada needs its resources to be extracted in a safe way. He blames the current government, though these problems go a long way back. We don't have a strong industrial policy--we need to get our act together. Petty politics by provincial and city politicians doesn't help. We're not a country right now. That's what is driving investors away from Canada.

Market. We are in one of the greatest bull markets of his lifetime. GDP growth is at 4%, US employment continues to improve. He expects the quality of jobs to improve, with higher wages that feed increased consumer spending. His advice to investors, “Don’t fight the tape.” Western Europe is being dragged along by this positive American activity, as is China. Tariffs pose a short-term problem but this will resolve and they won’t affect the large growth stocks. The drug companies and the movement in technology and automation, for example, will not be affected by tariffs. There are reasons to be concerned about certain specific stocks or sectors, but in general, the best thing to do is “get on, and ride the flood.” He is less enthusiastic about Canada because of high household debt and because Canada’s economy is too reliant on commodities. The world has overbuilt its infrastructure for commodities in this century and is awash in them. Additionally, NIMBY (”not in my backyard”) activists prevent Canadians from exploiting resources. For example, US railways are making $10 to 15 US to move oil rather than pipeline companies making $5. The Canadian oil producers pay the difference and Canadians lose the jobs. The Canadian dollar will probably go down further to compensate.

Comment on Preferred Shares and Royalty Companies. He would not own preferred shares because they are debt at the end of the structure and they offer no upside. He would rather own high-quality debt or high-quality companies that can grow their dividend. Royalty companies also offer income. They are a preferred way for institutions to own gold companies because they diversify the risk of actually owning the mines. Gold-royalty and oil-royalty companies are often very expensive. He thinks they are OK but there is no story to drive them other than the commodity itself.

Market. Growth stocks continue to lead the markets but if you strip out tech stocks then the market is down on the year. The FANG stocks are off their highs. We are seeing a rotation into a broader basket of stocks. In Canada it is the Cannabis stocks. They are our tech stocks. Aurora is higher today on a partnership with Coke. They have the strongest momentum on the TSX but he wants investors to rotate into value stocks. He does not want to crowd himself into a small group of growth stocks this late into the cycle. He prefers US and Canadian REITs for yield.

Market. As we get into the US midterm elections, trade will be a big thing. It is most important what the US is going to do with China and Europe. Canada is reaching a soft deadline at the end of this month for free trade. He heard there is a deadline of the 20^th of September. It all means uncertainty for markets and volatility around currency. Trump has to be able to talk of doing a deal on trade. It is next year's congress that will vote on all these things. He is not sure the uncertainty is going to go away. China is the most senior of the emerging markets and is down 20% from their peaks. The US is leading here. The Fed is slowing things down and that always, always ends the bull market. It could be 2 months, 6 months or a year from now but the emerging markets are showing that warning sign here.

ETF to replace registered pension plan. You have to figure out your risk tolerance. We are late in the cycle so now is not a good time to strap on a lot of risk. VGRO-T, VBAL-T, VCNS-T are very low cost ETFs he would recommend otherwise. Wait for a 20% pull back in global equity markets.

Educational Segment. The Longest Bull Market? It depends on how you measure it. If you measure it on a close to close basis we have not had a 20% decline since the bottom in 2009. But if you measure it on a peak to trough basis, we had a 20%+ decline in 2011. When you buy and sell, what you buy and sell is critical. We are definitely late in the cycle. He thinks you need to be cautious.

He's expecting the US to slap more tariffs on China, which is not good. True, China has been taking advantage of other markets, but tariffs won't help markets either. Canadian markets are going sideways whereas U.S. markets are rising. Valuations peaked at 19x and are now 17.5x, because earnings have risen. Good, but what will happen next year? He predicts earnings to be positive in 2019 due to less regulation in the U.S. and a tax structure that encourages business. He is cautious in this 10-year bull run. Earnings are going up, but there is pressure on wages and more tariffs. He has trimmed positions to rise to 7% cash and is not spending dividends. The market is fairly valued, but things could go wrong on the trade front.

News flash: Trump imposes new tariffs to China, starting at 10% for the rest of 2018, then 25% This isn't good. This is Trump's way of pushing things along to get China to the table. But Trump's time horizon is November, the U.S. midterms, while China's is much longer. Also, China vows to retaliate.

Sell U.S. banks to buy tech stocks? Buy a defensive tech stocks that pay a yield. Go conservative in tech.

Market. He thinks the energy market is about as bad as it can get. Differentials are at multi-year lows. Canada needs rail or something to get things moving. The BP refinery in the US Midwest will be back online next month. There are talks of two unit train projects being developed – putting 120,000 bpd on rail. There are discussions underway on Enbridge to deal with over-nominations and using drag reducers that can add 50,000 bpd of capacity. Line 3 and other projects are advancing. At today’s pricing levels, there are still 56% margins in the energy sector and stocks are trading at 3.7 times cash flow (half of historical levels). He is trying to convince oil executives to dial back capital outlays and buy back shares instead.

There's a divergence between copper (falling) and US 10-year yelds (rising) this year. Commodities sold off at end-July when they usually rise. At the same time, the US dollar went into the other direction, breaking seasonality too--and this rise is causing havok (like serving emerging market debt). He thinks copper will move back up. If trade talks resolve, then investors in the US may rotate to emerging markets. Meanwhile, the S&P recently broke a new high and the TSX has enjoyed a breakout since the spring and enjoys some good underpinnings despite pressure from the NAFTA talks.