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

Market and interest rate cycles: Bond market performance has been weak in both Canada and the U.S. Current 2.9-3% U.S. 10-year yields are still low to those who remember the 5-10% days, but compared to the moves from last year, these are big. So, yes, it's been a quick, sudden move. Some may say this is already a bear market for bonds. The street thinks rates will keep going up and up. But remember the economy is in a late-stage cycle where interest rates do move higher, though the Fed may raise rates too fast. We're getting close to the end of this rate cycle, moving as high as 3.5% which could drag on markets. Given the strong U.S. economy, he sees two more rate hikes this year in the U.S. as well as Canada.

What are your thoughts on Canadian banks? He likes BMO, TD and Royal for their valuations. He bought TD in the Q1 pullback and has shot up, surpassing his expectations. He wouldn't add to Canadian banks now though they offer decent value on the upside. Be prepared to pull back on Canadian banks if there is a market downturn. The big risk here is if interest rates rise higher than expected and effects mortgages.

The BoC and US Fed are optimistic and so are driving both markets, but he himself has some doubts. For instance, Italy gave us a scare last week and their problems will linger. This week saw some pent-up buying. The Eurozone has one currency for everybody, a one size fits all approach, but not all these countries are the same, namely Italy. This is his doubt. In Canada we face a possible trade war. Trump wants a 5-year sunset clause, but this hinders long-term business decisions. It's better to have no deal than a sunset clause. Investors should find stocks that will perform well regardless of NAFTA. Own the best and skip the rest. The big U.S. tech stocks aren't cheap, so you may not see company earnings for a while; meanwhile, they are volatile, subject to regulation.

What's the outlook for crude oil based on technical analysis? Crude oil broke a key support level on the daily chart. In the short term it's bearish. Since mid-2017, it's been in an upward channel and looks good. Hold on.

Market. The fundamentals underlying the economy are in good shape now and he expects this to continue into next year. The tech space, as seen in NASDAQ, is in record territory but looks to go higher. The fundamentals look great. The companies are growing well, the profits and balance sheets are there. This is an area that all companies will need going forward, so this will be a continuing theme. The TSX reflects a tougher situation. It is based on energy, financials and mining. The energy space has come up, then down a bit, but the overall record has been positive. The financials make up the bulk of the index. The results are very good but there is an overhang from consumer debt levels and house prices. It is tough for the index to move when the banks are not moving. Much of the excellent recent profits of the Canadian banks are based on mortgage loans, and with the new regulations, this growth might not continue as quickly as it has in the past. He prefers to invest in banks outside of Canada at this time.

Market. Trade wars are hanging over equities. It hangs over Canada more so than the US. Canada is a lot cheaper than the US in terms of price to book (40% cheaper than the US). It is due to financial stocks. They are cheaper in terms of their upside potential. They are 30% of the index in Canada. Very expensive stocks are refusing to correct and this is an ominous sign. Unfortunately the outcome of this tends to be dismal. Until we get a sell signal from the markets, we have to say that it is in a nice trading range.

Market. Either the ECB will come together and assume everyone's debt, and he does not think that will happen, or the European union will be over eventually. The markets are very much underplaying the risks around this. The policies of the new Italian government are to spend, spend, spend. They are proposing a mini currency, which is paper like a treasury bill to pay at the institutional level. The markets are also underplaying the risks related to the tariffs from Trump. They are going to break things before they get fixed.

Debt. We are choking on it globally. We are at 90% debt to GDP here in Canada. You have to include the provincial debt. The bigger it is, the more it makes interest rates difficult to raise. He thinks this problem is going to continue to get worse.

RESP Diversification. He would not just have banks. ZWU-T, preferreds, floating rate notes are good, too.

Funds of ETFs and who pays all the management fees. The quoted cost of the fund includes the costs of the funds within it.

Educational Segment. Chinese 'A' share markets. It's always been a closed market. A couple of years ago some ETFs gave you exposure to these shares. They are now getting into the MSCI emerging markets index. This is going to become a bigger and bigger part of international markets. It will add some volatility as well. ASHR-N is the first Chinese 'A' share ETF. In 2015 there was this big run-up in that market and then it collapsed back down again. In the next number of months if the 'A' share market gets back into its range it will look attractive.

Canadians really need diversified portfolios. Investors don't appreciate how unique 2017 was: volatility was a low 6.5, the second lowest in 84 years, which bred complacency. This changed early this year. Canadians need to diversify their sectors and geography. Home-country bias: we're second only to Australia, with 59% of stocks in Canadian when it should be one-tenth of that. To hedge or not to hedge CAD: follow the 50/50 rule.

What are covered call options? An institutional desk can manage these more efficiently than a retail investor. For example, you sell a $10 stock to a speculator who wants to put up only 50-cents and own the stock anywhere above $11. He has ownership of that stock over $11, but you're betting the stock will rise above $11. You give up the upside, but get a little of the downside and pocket that little premium. Options decay in value quickly near the end.

Why is a dividend ETF considered income and not a dividend? It's a function of an individual ETF, depending on the holdings within that ETF. You will see a mixed tax treatment. Held within a TFSA, you're good, but outside you will be taxed.

Better to buy a country or a sector? It's a tie. It depends on the country and the sector. Example: Canada which is dominated by natural resources and banks. Consider the momentum factor instead--what's performed well in the past 6 months. If that momentum is in a particular country or sector, that's fine.