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

Can you explain the disconnect between the price of oil and the stocks in the sector? There has been a disconnect that is surprising. There are some reasons like the pipeline problems and the western Canadian select spread - but that is improving -. Capital leaving the Canadian Patch and going to the Permian basin. That created opportunities and companies are figuring it out. You have to be patient with this group. Many names are looking cheap now. Bottom line: stick with this group. One of the few sectors he has a significant overweight in the market now.

Is the Canadian Telco sector a good investment for capital preservation and yield? Yes. Yield and safety are there. Within the sector he likes Rogers Communications Inc. Class B (RCI.B-T) and Shaw Communications Inc B (SRJ.B-T). Particularly the later as the stock might play a little bit of catch up here.

Market. He sees the market being in a tug of war with the Trump Administration creating volatility with trade tariffs globally. He thinks the market is continuing to bet this is all just short term noise. A year ago he was very cautious about interest rate sensitive stocks, which conflicts with the need for yield by investors. They were lightening up on telcos and utilities and feels there is still pain to come in these sectors.

Deploying cash now. He would focus on mid-cap names to avoid noise with tariff risks. His company portfolio holds 60% mid-caps. From a currency perspective to the US dollar, he doesn’t see much to protect against potential currency exposure at this time. He would suggest employing a dollar cost average approach for entry. He would caution purchasing bonds, as some high yielding ones trade more like equity than bonds.

Governor Poloz from Bank of Canada talked today: He didn't say a lot. He'll make a rate decision later. Today, various comments from Washington about backing off with proposed tariffs, then reversing themselves created market uncertainty and volatility. Things can get worse, but we still have a strong economy with reasonable valuations. The yield curve has not inverted, though it's flat. Don't be aggressive at these levels. Tilt your portfolio just a little towards defensive stocks, but don't abandon your portfolio. If there is no major damage in trade, there won't be a recession for months or even years. We had a spectacular earnings season in Q1 in the U.S. with Q2 coming. Canadian markets are a little deceiving, largely due to a falling Canadian dollar. We're not really hitting new highs, just last week matching January's.

Why are Canadian junior companies badly lagging the rise in oil prices the past year? Because those companies fetch lower western Canadian prices, not world (WTI) that we see. The price difference lies in the lack of pipelines in this country. Another reason is that U.S. investors no longer flock to Canadian oil--the U.S. now has its own oil production, so those investors aren't crossing the border anymore.

Trump is preventing better returns. His tweets pressure the markets. Calm would raise the markets. A recession is still more than 12 months away, and so the market can still rise a bit more. Start to hold a little more cash for opportunities. Underperformers are financials and the interest-sensitives, but these have been done underdone. Be in a little less tech and a little more defensive. If you can take partial profits from say Facebook, then buy a dividend-paying stock. Look at reset preferreds. The Canadian market is roughly flat for 2018 (January highs) while energy has been improving from the gruesome lows of the past few years, though $22 is the Canadian discount. That said, Canada will benefit from rising oil. Big cannabis stocks need an awful lot of growth to justify the valuations. The smaller weed stocks hold more opportunity, because they can be taken over.

Market. The US dollar is in a bull market. He expects the US dollar, and all assets priced in US dollars, will go substantially higher. He expects this to continue for a 5 to 7 year period. Things look good in the US market. He recommends ignoring the Trump tweets and focusing on the statistics. Fewer companies are participating in the growth than he would like. Financials are going sideways as his models of their value increase. He uses Model Price Theory (https://modelprice.wordpress.com/) and sees rises in interest rates as bullish. He thinks that Europe’s economy is getting substantially worse and that Deutsche Bank’s woes will cause broader problems in Europe.

Comment on Canadian Banks in the United States. In general, American customers tend to like Canadian banks, so they are positioned to expand there. He would buy the Canadian banks on a pullback but would not buy them today. The upside is not as strong as it was in the past. All over the world, everyone is short Canadian stocks, including Canadian banks. Our debt and valuation are seen as high. So, for example, he would buy TD at $66 compared to its current price of $76.74.

Is it a good strategy to hold half-fixed income stocks and half-dividend growers and generate income this way in a rising rate environment? In the past two years in Canada, the bond index return is about 0%. You need the return to be 4% which you can get in preferreds without the risk. If you have a dividend grower, find a stock that also has earnings growth, like AQN-T.

Market. He is not lightening up on any position today. He has taken a defensive stance over the last few weeks. He has moved away a bit from tech, industrials, financials. A potential trade war with China could be a cloud over stocks for the next little while but building tech products at the lowest price is good for everyone in the world. He thinks earnings will be great this year and continue to be good in Q2. Tariffs, though could put us into the feared recession. Domestic names in the US have done quite well where they don't deal with borders. Don't fear equities but have a basket that includes unloved sectors.

Split Share Yields. When you have a portfolio of securities that pay a high dividend, you create a split share to allocate the growth and the dividend of the company to two different securities. One is a preferred and the other is a capital share.

Educational Segment. The Best Market Return Indicator. The percentage of three asset classes that are part of the household assets. The value of your real estate, value of your portfolio and all liabilities. When everyone is in and have a high percentage of their household assets invested in markets, usually for the next 10 years, it is just less than 4% annualized. We are in a period now where a high percentage of household assets are in the market. This indicator has a 91% correlation to returns. This indicates we are late in the cycle.

Market. Over the last couple of weeks we saw trade, trades, trade and today we are down. We are sitting in the DOW right at the 200 day. We have not had a close below the 200 day since 2016. If it closes below there then we will test the 200 day on the S&P and if we break that we look at the lows from April and May to test out the downside. In Germany there has been pressure within Merkel's party. If things come apart in Italy it does not look like Germany will write a cheque for it. The more pressure we have on the US dollar, the more pressure we will have on the financial markets. Mid-2019 is where he thinks the recession will come. The market peaks about 8-9 months before a recession is labeled. By that time the markets are down 29% on average. The market peak should be early next year.

Vanguard double taxation of some ETFs. There is a withholding tax for an ETF wrapped within another ETF that also has withholding tax. He suggests calling Vanguard to discuss it.