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

When will gold and silver finally go up? We're supposed to have strong seasonality starting at the end of last year, but it's been falling. Instead of watching gold price, see how the gold producers act. You have to look at the U.S. dollar. Silver is much more volatile. It's also a leading indicator for gold. If silver sees a run-up, then gold will as well. Again, for silver, look at the producers and the U.S. dollar.

Market. It has been a frustrating year for Canadian small caps this year. Canada Goose and Shopify has helped to create some new interest. Cannabis stocks are something they have invested in, but they see the valuations as stretched. TRST-T is their largest holding in the space. The Saudi issues with Canada are not expected to be that big of a concern. The market was weak on Tuesday and he thinks that was selling by the Saudi’s before the announcement went public. The success of the US market indices has emboldened President Trump to continue to press his international trade and tariff policy.

Energy Sector. They are slightly overweight into energy, holding 25% of their portfolio in that space – particularly into E&P and service companies although the pipeline companies are attracting their attention now. Canadian energy has been undervalued by the market. He thinks the recent drop in WTI prices has tested the market, but the Canadian market has held its value reasonably well. The supply/demand balance looks favorable as Iranian volumes may soon decline. He thinks $65-$80 for WTI is likely going forward and this is favorable to Canadian holdings.

Market. TSX down over 200 points from recent high. It’s been 5- 6 months of going in circles. Tariffs, NAFTA are weighing on TSX. Enough uncertainty to keep corporations from investing, and investors on the sidelines. He’s been putting more money offshore. We’re going to have this kind of market until the mid-terms in November. Saudi dispute is a tempest in a teacup, Canada is not a huge trading partner with them. They picked on us because we’re an easy target.

US or Canadian for balance of the year? More US, their economy is doing very well. Tariff uncertainty will blow over once November elections are done. Sees no loss of momentum in US economy until 2020.

Covered calls. Covered call is a worry if the market really takes off because stocks will be “called away,” and the ETF will have to buy them back at a higher price. In the meantime, it adds an additional layer of income to the dividend yield.

Mutual fund business. Difficult to fight the ETF trend and maintain your fee structure. It’s a tighter fee world. The average investor is more aware than ever of fees they’re paying. The days where you could have a quarter and be up 5-6% are gone forever. Not likely to see 7-8% interest rates in next decade.

Buying utilities when interest rates are rising.You’d want the ETF, which gives you broad exposure, like ZWU. The moment there’s a hint of interest rates rising, people rush to sell. But this assumes rates will go rise significantly. But utilities represent a nice little investment instead of fixed income. People are realizing that the sell-off was excessive.

Market. The recessionary signs are still pretty low so stocks have room to move but with trade wars it will be a slow grind to get there. He prefers equities to fixed income. He takes advantage of more aggressive opportunities but then uses defensive plays to reduce risk.

[Caller afraid of international equities this late in the game]. In general you want some diversity – US, Europe, Emerging markets. The TSX is close to all time highs so the valuation is not that different than the US, although the European market is relatively cheaper. You need to be cognoscente of currency. The Canadian dollar is low right now.

What are markets reacting to? Tug of war. US economy very strong plus some amount of coordinated global growth. So, intact growth and employment story. On other hand, Trump-inspired jitters. Market can’t decide if real trade war or just noisy public bargaining. Most people see deals being reached. Also reacting to rising interest rates.

NAFTA being shrugged off by markets? Yes, because markets get conditioned to the headlines. NAFTA looks clearly like it will get a deal with Mexico on car parts, and then maybe Canada will follow. US plays the supply management card 75% because they want “something else.” One thing US really wants is to lower tariffs on packages going across the border, such as those coming from Amazon.

State of the current market? Prem Watsa’s bear thesis will bear fruit, but that’s 12-18 months out. US economy is on such a roll, it will bowl through a lot of obstacles. Betting on the wall of worry will eventually work out. Serious market correction maybe 18 months out or a little longer.

Aeroplan. Don’t panic about your points, they still have value. Aeroplan’s credible because Air Canada’s credible, not because Aimia’s credible. Don’t want the recent kind of publicity if you want people to see you as steady-eddy.

Marijuana stocks. Has been investing. Trading them. Bit worried about valuation. Combined market cap of Canadian public companies is $20B vs. a $5B market size. Sense that in October, lack of supply will help price shoot up, but he’s not so sure. Blueprint will be different in each province. Not quite as crazy as the dot.com era, but there will be consolidation. He’d stay with the bigger players like Canopy Growth. Look to the US for much lower multiples.