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

Market. Earnings season, beats and disappointments, especially in FANGS. Saw a big reversal today in a lot of the technology stocks. Market’s still pretty robust, DOW outperforming from time to time. Trends are still positive. No confirmation of a reversal to this uptrend that started a couple of months ago. No drivers for selling right now, though always need to be cautious.

Best US growth in years vs. reasons to sell specific stocks. US growth is why markets are doing well. S&P close to record highs, NASDAQ doing well until today, lots of enthusiasm for the bigger players. Concerns him a bit that it’s looking a little like 2000, where there was a divergence between enthusiasm for the tech names, and then Canadian banks started making new lows. Banks are not falling apart, but the psychology is interesting. Amazon is up $600-700, and you want to buy in, but if everyone buys in because of FOMO, then that’s usually the end.

TSX making new highs, but YTD up only 1% and a bit. Hard to be a Canadian money manager this year. US portfolio gains of 10-20% are quite strong compared to the TSX. Banks putting hammer down on rallies, a lot of divergence within the oil sector. TSX is difficult, as it has half its stocks going up and half going down, and so the broader index goes sideways.

Market. The story about valuation being stretched is nothing new but now you have geopolitical uncertainty and rising interest rates. The market is not willing to play as much for pure dividend plays. Earnings per share growth have been healthy on the S&P and half of it is from tax cuts. That growth won't be there next year. FB-Q is spending much more than expected and took a dive. They represent a lot of the US market. So you see this played out in the index. You should pick individual stocks and not buy the index because then you can control your weightings.

Interest Rates. Canada and the US are raising rates. You should put money into the one with the faster increasing rates, as increasing rates make the currency stronger. It will probably be the US.

Healthcare Sector. He likes the space. It is the highest volatility area he is in. It is a CAP-X heavy space. The landscape can change quickly. There is a lot of opportunity and value in the space, however.

Market. The markets have every reason to sell off from here. Trade tensions are getting entrenched. But markets haven’t sold off as investors believe that something pragmatic is going to come up of all this. Europe seems to be conciliatory. NAFTA seems to be around the corner. Fundamentally you see great earnings, no recession is in sight. Don’t want to be a cheerleader but US markets are going to be higher a year from now. Canadian stocks are at the same level they were at in 2014. They are 2.5 points cheaper than US stocks. Canada is very undervalued, it is going to respond soon.

Are we really in a rising interest rate environment? Interest rates have been raising. Bank of Canada is on their third rate raise. Having said that the ten-year bond is at 2.3% yield. Still very anemic.

Amia bid by Air Canada – The re-purchase of Amia by Air Canada has a lot of points customers upset. Was it fair for Air Canada to buy them and not redeem all the previously earned air miles, only to bid for the company at a sizable discount? The unsolicited bid has driven up the Amia stock by 30%.

Market. He does not see a recession soon, but it depends on interest rates and earnings. Thus far, 90% of companies are beating on earnings expectations. Tariffs could result in higher costs in things like automobiles and it is not yet clear how that may influence the economy.

Trump's call to EU today should remove some tariff uncertanty. Should. Maybe that'll transpire with NAFTA and the auto deal, too. Meanwhile, economic indicators show continued improvement. The 10-year yield curve is trending down and is certainly on a lot of people's radar. If the yield turns negative, a recession usually follows in 12-18 months, but maybe it'll happen sooner this time because so many are tracking it.

Markets. He thinks the equity market looks decent for the next year, but acknowledges that the declining prices of copper and zinc would traditionally be interpreted as signalling a potential recession. He thinks the U.S. economy is still growing and that Canada’s will grow with it, at least for the next 12 to 18 months. In contrast, economic indicators for Europe rolled over almost a year ago. As the U.S. dollar rises, the cost of servicing US-denominated debt is rising for European and emerging-market businesses. The yield curve is close to being inverted (short-term interest rates higher than long-term): this usually indicates a recession is coming, sometime in the next 14-34 months. Typically, equities continue to rise, by about 15%, for about 18 months after the yield curve inverts, before the recession hits. In addition, there are reasons to expect the yield spread to widen, with long-term rates rising significantly in the next few months.

Comment on Utilities versus Telecoms. In a rising interest rate environment, stocks in both industries come under pressure. Research by Ned Davis suggests that dividend stocks can still perform well in a rising-rate environment if their underlying earnings are improving. He owns more utilities and fewer telecoms but in general he thinks there are better opportunities than appear in either industry at this time.

Daniel Farb resigns from the board of Meg Energy, unhappy with its direction. He agrees, unhappy with their direction. Also, energy is a sector you want to be in only a short time. He thinks we're in one of the great bull markets. Other than Trump, the world is a great place. Commodity prices are high. Inflation is low. The stocks that rose, did, as seen with current earnings reports. Trump creates a lot of noise and some of that he makes into policy that is destructive to a degree to Canada. However, Facebook, Mastercard and other U.S. companies are doing well. We're moving away from factories to automation, and those who used to vote Democrat feel left behind. He doesn't know anyone cancelling Facebook and he expects their earnings report to be strong.

Are cannabis stocks iin a bubble? He can't do fundamental analysis on cannabis stocks--he doesn't know what the demand will be and what share the illegal market will have. Also, this kind of consumer product involves customer brand loyalty. So, branded companies like Constellation which are working with cannabis will fare better. Yes, we're in a bubble.