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

ETFs or Mutual Funds? The funds on ETFs are generally lower. Those who trade ETFs, tend to trade them more often. The ETFs lack the same breadth of offerings.

Market. There was a ruling against trans-mountain pipeline today. The US is not cheap enough to sell his US dollars to come back. It could be an economic downturn catalyst but probably will not be. NAFTA is critical for us to leverage of the US economic success. He is putting client's money to work in the US. Canada has major issues. You have to be selective in Canada. You are looking for companies with US exposure, income and earnings. Today's news in the energy sector is not positive.

Canadian Banks. You always want to buy them on a pull back. We have not had one for quite some time. A 10% or more correction and he would be a buyer. In general they are not cheap enough to buy and not expensive enough to sell. You have to hold them.

Market Outlook. The US economy is doing well. The Canadian market is doing good. So, in general North America is doing very well. The yield curve is flat saying that there is no going to be a substantial amount of growth and relatively low inflation. He thinks that the Fed is increasing the rate but also reducing its balance sheet (down by $200 billion by the end of the year). This in the end is tighter monetary policy that is having an effect in the emerging markets. He thinks the Fed could not be doing both things at the same time. In 2019 the European Community and the European Central Bank thinking about stopping EQ there. He is not negative on the stock market but doesn’t see huge runs also.

How do you see gold? Real rates are positive in the US now and that is negative for gold. Gold had a run up because people believe that QE was going to lead to inflation and that didn’t happen. Gold is also now competing with other assets like Bitcoin for that preservation of value idea. There are other better places to put your money.

What happen to shares when they are bought back? Share buybacks are an economic decision that companies make. The problem with share buybacks is that sometimes companies use debt. When they buyback the shares companies retire them basically. If companies do it when they don’t have a better place to invest their money other than paying a dividend they run earnings per share higher basically.

Is this a good time to get out of all the pipelines? If oil goes up Canadian Stocks and pipeline companies will do well. We have this problem in Canada that we have this great resource and we cannot move it. It is not an easy problem to solve. But pipelines that have the assets in the ground are more valuable because of this. This is why we own Enbridge (ENB-T).

U.S. markets hit another all-time high today: 4.2% GDP growth in Q2. What's not to like? For the bears: we can't go from 4.2% GDP to negative instantly. Yes, there'll be a recession at some point, but he doesn't think it'll be soon. Maybe Canada is producing above capacity with a lack of truck and rail capacity with some inflationary pressure. Debt will bring the party to a close in both Canada and the U.S.--personal, government and corporate. Gradual increases in interest rates will eventually force people to wake up to the cost of their mortage. He warns people about debt. In good times, pay it down.

What is Market-Neutral Investing? A market-neutral find tries to be effectively short as much as it is long. He has about $400 million assets under administration, with roughly $200 short and $200 long.

Market. He has no inside insight about the NAFTA negotiations but suspects that they will take a little while (longer than the week currently being talked about). This has been a hot topic since Trump was elected and so, he thinks, investors have already positioned themselves in terms of this risk. Therefore, he is focused on the fundamentals and risks of individual companies rather than on the macro developments. The investment theme that is currently most interesting to him is the interest rate-hiking cycle. Short rates are up, not just in Canada. This usually has a lagging impact. The last rate-hiking cycle was in 2007. Other similarities to 2007 are the yield curve and the level of M&A activity (the market is blowing past the 2007 level of M&A). M&A has involved several trillion dollars this year, which makes shorting individual companies very challenging, but he thinks that shorting is likely to pay off on a go-forward basis. He has been doing well with a merger arbitrage strategy.

Market. NAFTA news could come quite soon. It is good news. If we get to trade agreements before they escalate that is good news. Trade between China and the US could take a long time to solve, however. Any deal Canada does for dairy will have to include a schedule where supply management gets unwound over a number of years. Next October there will probably be a federal election so Trudeau is under pressure. It is more noise than anything else, however. The markets have taken a bit of a notch off of rate hike expectations for November.

Recently we had a selloff in the gold sector so he is overweight gold in all his strategies. If you want less risk then go for the option type strategies, such as put-write (ZPW-T, PYF-T). He likes these late in the cycle.

Value Stocks a good Choice at this Point in the Economic cycle? There are ETFs you might play for a value tilt: In 2001 all the money came out of tech and went into value stocks.

Educational Segment. Currencies matter. Trade deals impact currencies. After 1970 the US went off the gold standard and floated more freely. In Canada/US, the average annual change is 5.39%. Most years, currency is the single biggest item that defines your returns. We are much weaker against the US dollar than we were in the '70s. Against Germany, 70% of the return between Germany and the US was the currency. ETFs allow us to hedge or not hedge and that is another reason he loves them.

Market. It seems like it is pretty definitive regarding the US/Mexico deal and the real question is if Canada will be part of it or will it be a separate deal. The Canadian dollar has come up a bit and the markets are where they were before the deal. It is a limited market reaction and that is a positive sign. He sees some catch-up trade in Canada as the US has done so well. He has been moving money into the US since 2013. It has been a bit of a safe haven from a Canadian dollar point of view. The US is still a favourable place to invest. Within Canada he would not change any weightings. The biggest risk is the dollar.