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

Market. The yield curve in Japan has been flat with negative interest rates for some time. They are the world leader in QE. They are the single largest holder of Japanese ETFs in the world. He thinks they will target shorter parts of the curve. And longer term parts of the curve will creep higher. There is a tremendous supply of bonds coming to the market. He thinks we will start to see a steepening of the yield curve. It will be interesting to see what happens to mortgage rates. Tensions with Iran are bearish for the world – don't go out and buy oil stocks because of it. The FANG index is hitting resistance and he thinks we are in for a correction.

Educational Segment. Market Breadth. Everyone knows earnings are expected to be good. What matters most is what people actually do with their money, not reports. He likes to look at the S&P 500 and its 200 day moving average. We are getting close to the highs from earlier this year. The return to risk ratio is not looking so good. He then looks at the percentage of stocks that are trending above their 200 day moving average. We are at 62% but were at 70-80% back last year when the markets were robust. How many stocks are making new highs? Last year the trend was robust and increasing. It peaked in January. This year the percentage is on the decline. You currently have only a few stocks lifting the markets. The S&P-500 absent the FANGs is not even up this year.

Market. Markets have been a little choppy. The US market has continued to climb despite all the things Trump says. There are positive fundamentals and good economic numbers. He believes this will continue to play out for the remainder of the year. However there are high PE multiples and rising interest rates. There are opportunities for stock pickers and you have to be a little more selective. Avoid the momentum and tech stocks. He invests in US banks rather than Canadian ones. There are greater risks and more headwinds for Canadian Banks.

Earnings season has been great, such as Thomson Reuters revenues up 20%. But these gains are already built into stock prices. Can the markets keep going up? Every August-September there's some geo-political event. These are usually the worst two months. Trump doesn't like that the U.S Fed will raise interest rates, though he's not the first President to put pressure on the Fed He thinks Powell will stay independent and won't buckle. It's difficult how Trump will manage trade, the dollar and China.

Lumber stocks have been effected by hurricanes and rebuilds, but has suffered a big downturn since May. It's now out of season, still falling. Wait till the fall to buy this sector. It could fall further from now to then.

Use moving averages to determine bounces and lines of support? It's one factor. Looking at 50- and 200-day moving averages, you get into golden and death crosses, but these happen over too long of a timeframe for him to look at. Instead, he looks at 10- and 20-day moving averages to establish a trade. That said, the 200-day is important, because many investors feel it is and they will sell. It's impossible to follow just one moving average because an investor will get whipsawed all over the place. You need another factor to decide whether to get in or out.

Market. The US economy had a good second quarter. In Europe and China things are slowing little. One of the main things that the Fed has to face is the yield curve flattening quickly. He believes the bond markets figure things out fairly quickly. The yield curve is saying that there is slower growth and low inflation. This doesn’t mean you can’t do well in stocks. You have to be very careful when interest rates are being raised. Particularly in light of coming out of QE. Earnings have been coming very strong.

Market. Stock piles are nearing record low levels. Lack of available inventory within OPEC and lack of investment in OPEC and non OPEC countries. Inability to meaningfully grow production after 2019. USA has a pipeline bottleneck until 2020. With continued demand growth, we see inventory continuing to drop. See inventories approaching all time lows by the end of next year. Demand will only decelerate in today’s economy at $120 oil.
40% underperformance by Canadian energy stocks relative to index. A lot are trading at 4X multiples instead of normal 7.5 to 8X. He sees a minimum of 50% upside and if he is correct at $80 oil, he sees 100% upside in Canadian energy stocks.

Frac Sand Stocks. He got out of this sector last year. Perennial concern of too much new supply in Texas. Beginning of 2017, quality was questionable, but found they could use a lower quality sand. Storyline changed dramatically and he is no longer in this sector.

Market. Shift in politics moving to the right. We are seeing some barriers. Green economy has grown tremendously and moved toward the mainstream. Interesting to watch Trump with coal, and Doug Ford moving backwards on green energy projects. This is a short-term slowdown. Long-term, tremendous investment opportunities.

Big companies moving to clean energy. Car industry is going full steam ahead. Every major car company is moving on hybrid vehicles, and this is a major change. Easy to get caught up in short-term political cycles. Right now, he’s looking for opportunities that are a little undervalued. Long term, no question that this is the direction the economy’s going. Not a question of if the economy will change, but how quickly it will. Tread carefully for now, over next election cycle. Emerging markets like China and India are investing in green energy. Bit of a lost opportunity for Canada. We had been at the forefront, but now we’re taking three steps backward.

Can wind power be a profitable part of your portfolio? Absolutely. Renewable energy is a play on long-term contracts. Costs are coming down dramatically. Though in Ontario, there won’t be any new contracts. Tremendous opportunity, becoming competitive with traditional systems. Look to improving energy storage to capture wind when it blows at off-peak times.

Carbon bubble a risk to Canadian investors? If you accept climate change, are we going to be able to burn all carbon sitting in reserve? Risk that these assets will be stranded, either by government regulation or by economics. Carbon bubble of about 20 trillion dollars. Proven reserves of about 27 trillion dollars. Lower demand or higher price may make us want to keep reserves in the ground. If it happens all at once, investors will get burned. Lot of oil, gas, materials, mining on the TSX, plus banks have a lot of exposure here. Won’t happen in next 2 years. But horizon of 20, 30, 40 years will see a serious writedown of carbon assets on these publicly traded companies.

Market. He is happy to emphasize Canadian Equities. There can always be a plunge in the markets but if you look at the US the earnings grew into the level of the market. But the high tech companies trade at very high multiples and skew the average. The value part of the market is fairly valued. The economy probably has another 18-24 months in it and that should help the markets. Tariffs do not change his strategy but he does not know what the outcome will be from the trade wars. There is global liquidity being taken out of the system. It should make security selection much more important in the upcoming years.

Energy service sector. It is more volatile. He has PSI-T and PD-T. He does not have a lot of weight in the oil and gas sector. He quite likes the two he has. If things get low because of seasonality, it is a good opportunity to buy.