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

Can you recommend a safe and with a modest yield Canadian name in the sector? He can’t in Canada. The sector is only 3% of the Canadian Market but 15% globally. He would look at an ETF.

Will the US dollar strength affect pharmaceutical companies’ earnings - yes, some impact particularly for those US names with global revenues.

Market. Fourth of July is not a good day to trade in Canada, with the lack of liquidity from the closure of US markets. If you can, wait a day. As the mid-term elections in the US approach, he thinks much of this trade war rhetoric is positioning ahead of the elections. There is nothing worse for economies and stock markets than protectionism, he says. A 25% tariffs on cars, for example, would kill the auto market in North America. He has been a seller recently to shore up cash just in case in his portfolios. He is not foreseeing a recession just yet, but he is being cautious. He expects the Bank of Canada to raise rates by 0.25% next week.

Cannabis. He has nothing against “sin” stocks. However, he sees the industry in its infancy and does not know what the future margins and earnings will be. The current valuations are too risky. Some players will survive, but would recommend waiting to see how things settle. The easy money has been made.

Now, you have tailwinds vs. headwinds: solid economic data and corporate earnings from the U.S. vs. esclating trade tensions around the world. If there's easing of the latter, then we can see a longer bull-market ride. Be in cyclicals. The
defensives including telecoms have done well the past few months, but now he suggests moving into cyclicals. About 75% of his holdings are in the U.S., especially consumer discretionary. He's also being cautious by taking profits faster, and hecurrently holds 12-15% cash which is higher than his 5% norm. He holds FANG stocks like Facebook and Google and some semiconductor manufacturers. He has sold his Canadian oil stocks as the price rose. He's not sure that oil can continue to push higher.

Canadian vs. U.S. stocks: Given the exchange rate, is it worth buying U.S. stocks? He gets this question a lot. He says it's not a loss necessary. The U.S. has performed better than Canada in the past decade. He still likes the U.S. and holds most of his equities there. Tax reform and fiscal stimulus are tailwinds. NAFTA will be tougher on Canada than America. The S&P has returned twice as much than the TSX over the past two years.

Trump is the biggest influence on the market, both tailwind and headwind: the U.S. tax reform to lower corporate rates, then starts a trade war, creating a vacuum of uncertainty. Is he doing this to open markets down the road? If so, they should play out by the end of 2018, which is a good impetus for markets. Investors should look at assets not as impacted by trade, but benefit from the tax cuts, such as the banks and tech companies. He doesn't believe the US has huge trade surpluses as Trump claims, because so much of U.S. output is services.

Outlook for Canadian banks: Headwinds: Canadians have a high real estate market, a flattening yield curve and fears of a trade war.

Writing covered calls against the FANG stocks? He does this and it works very well for him. The premiums are in the second quartile, and these stocks are rising, which report earnings this month, which will be interesting.

What's a low-risk ETF for Canadian banks, and is this still a good ETF to be in now during a trade war? He doesn't think there will be a trade war, but banks are the safest place to be in Canada. They make a lot of money and pay good dividends around 4%. They should do okay during rising interest rates. Instead, if you have low/medium-risk, then diversify into fixed income as rates rise. Look at floating rate preferreds.

If you were to sell a covered call at 6 months out on the banks, like TD at $76, it doesn't get taken, then drops to $74 before the end of the contract, would you re-sell that $74 contract knowing you would lose money if you were to get called out? Probably not. You would lose your winners and retain your losers, which he doesn't advise. Otherwise, hang onto the stock.

Market. He thinks Canadian energy stocks should have performed much better given how oil prices, converted to Canadian dollars, has risen. Following the OPEC meeting and strong demand forecasted for the latter half of the year, he expects some catch up in the sector. He adds geopolitics in Libya, Venezuela and other others should add to the head winds. He likes the Canadian banks, trading at 10-12 times earnings and there have been reports of good earnings growth. He would be adding to his holdings in this space.

Do ETFs drive the market at the end of each trading day and therefore dictate how markets close each day? There are always order imbalances upon the close at the NYSE, like an extra $300 million in sell or buy orders, but that's not enough to move the markets, because they know this 30 minutes ahead of time (3:30 pm). These market makers try to match these orders in the last 30 minutes of trading and this generally works.

The taxation of puts. If I trade a lot, like 3-4 puts a day, will it effect my taxation? First, selling puts in the U.S. makes sense, especially stocks that sell dividends. If you do, say, three puts a day, be careful that CRA doesn't consider you a professional trader and tax you accordingly.

Market. He thinks the trade war, with Canada’s retaliatory response today, is not truly impacting the market as the Dow was still up 200 points following the news – the market does not really care. The impact on Canada should be small, in his opinion, given that most of the business between the two countries is in the service sector.