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

Market optimism driven by maybe a resolution in the China-US trade spat: Can China really do anything to please the U.S? The problem is Trump points to the trade deficit and wants that to decrease. China can do whatever it wants to
close the deficit, but 30% of trade goes to Europe, so what'll happen to Europe? Does China stop buying Europe's Airbuses and luxury goods to buy America's instead? As for Turkey, it's nothing new. Emerging markets have defaulted on their debt before. The Turkish lira has been slipping since 1970. This is no surprise. Elsewhere in the EU, without currency devaluation, Greece can't grow.

Market. He thinks we could be in for the longest price retracement since 2015 for oil. The headwinds are commodity price weakness globally and misalignment between OPEC and Russia increasing production. Both issues he suggests are being caused by sanctions and tariffs concerns caused by the Trump Administration. He thinks the surge of 1 million barrels per day has taken away the surplus productive capacity, so remains very bullish on oil longer term. Canadian heavy oil investors may be overlooking a great buying opportunity. Despite the heavy oil discount being at $29 to WTI, the short-term takeaway constraints out of Canada are likely to be mitigated to a degree allowing the differential to tighten towards a $20 discount. This can mean a 100% improvement in cash flow for some companies.

TSX outlook. Has been in a holding pattern with trade tensions lingering. Canadian economy doing pretty well, with GDP strong and inflation hot. Corporate earnings doing well. Market is a gauge on people’s sentiment. He focuses on specific companies with high quality earnings and cash flow. Have cash on the sidelines in case of volatility. Parts of the market he likes, but broader market is all over the place. Need a defensive posture right now, clipping yields where they can.

China. Big issue for US is China. Meeting scheduled for end of month. Hopefully, sabre rattling is over, and both sides can get to a deal they’re happy with. Toxic US political environment makes things challenging. Looks like US is locking up things with Mexico, but Canada is still in a holding pattern. Hopefully, the US and Mexico won’t turn on Canada.

Trump’s wanting companies to report only every 6 months. Companies waste a lot of time having to deal with investors. A longer term horizon, not having to worry about beating earnings, is a positive thing. More companies should do it the Warren Buffet way, and not worry so much about short-term earnings.

Positioning heading into the fall? Defensive posture. Focus on high quality, cash flow companies and on the yield. Chance for market to go higher if trade gets resolved positively. But with the stress in emerging markets, there’s risk of volatility in the spring, so have some cash on hand.

What makes a good real estate stock? Over time, most stocks that trade at a discount to NAV are due to mismanagement. It's not good enough to increase occupancy and rent, but it's what managerment does with that
capital, like overpaying management or issuing equity improperly. So, this discount to NAV will persist. Can I invest directly in a property instead of a real estate stock? He doesn't like REITs that pay high dividends, actually. In fact, those that pay low dividends generate outsized NAV. Real estate demands a lot of capital to operate. Buying a property itself--are you comfortable manintaing/fixing that property all the time? Also, how much yield/profit are you really earning by renting out? 1.5% vs. a 5% yield from a REIT?

Canadian REITs have outperformed US ones for two years, 14% vs. flat in the same interest rate environment. Why? The U.S. had a strong run-up in fundamentals coming out of the recession. Demand was strong and supply was in cheque, so owners could demand higher rents. Investors latched onto this trend until 2016, when the growth names in FANG stocks stole investors from U.S. REITs. In contrast, Canadians love REITs and supply has remained in check.

Market Expansion of North American equities. He is getting a little concerned that the expansion is long in the tooth. This party has to end sometime and no one is predicting the rally will last 5 more years. He thinks the markets will be fine over the next 6 months. When we get into next year, we will see the impact of monetary tightening and slow down of the US economy. Canadian stocks have been dismal the last 2 years. This is due to concerns over NAFTA and trade. Canadian banks have done well since the first quarter. He thinks we have seen the best we are going to see regarding oil prices, this could be a problem in the second half of the year.

Market. He is well under weight in the base metals and materials and is glad for it. The US dollar has been the place for investors instead of precious metals. Cannabis stocks are in favour, but the recent proposal of Constellation Brands to take over Canopy Growth would likely require the US markets will become open in the next 3-4 years to make the valuation make sense. The investment would be worth $10 billion and he is not sure how successful it would be.

Gold. Gold has been weak, because of the strength of the US dollar. People are not looking at it as a store of value anymore. He no longer thinks it is the safe haven for recessions or other economic catastrophes like it was in the past.

He likes the U.S. to invest. Earnings and economy are doing well. He holds a lot of cash, though. Still positive about America, despite the headlines. Sector to avoid: gold which he's never liked. With U.S. rates and dollar rising, EM
currencies are dropping. Gold hasn't been a hedge in a long time. He likes ETF all-caps like VUN, and is steering away from the FANG ones. Turkey is our August problem this year, but market impact won't be that great. Otherwise, we'll watch the usual Trump tantrums.

What U.S. dollar bond ETF to buy? AGG, ZMU and ZIC, the latter of which are mid-term corporate bonds with several in the U.S.

An ETF to weather volatility? There's risk in whatever you do. You can buy a bond ETF, but with interest rates rising, bond values will decline. For stable growth over time, look at ZWB-T, HFR-T, XFC-T or one of many bond ETFs.

An ETF that covers venture capital or hedge funds? There was a Globe article today about how lousy hedge funds perform. He doesn't like hedge funds. Hedge funds aren't like buying bank stocks; there can be huge liquidity issues and there are many, many kinds of these funds, all different from each other. Avoid both hedge funds and VC--you can't sell them when you want, and he hates this.