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

Market. FB-Q is one of those names that are interesting but it is still down from its highs. GOOGL-Q and so on are all off their highs. People are concentrated in the fewer and fewer names that are working. People are looking for the names that are pounded down and considering those. In a rising rate environment, markets are a little more difficult. You should have some cash ready to put to work. Rising rates lead to higher spreads for banks but higher mortgage rates are squeezing people. We are getting returns from dividend companies and a lot of dividends come from the financials and if the economy slows, they will not be immune.

The Banks and a NAFTA Deal -- Is it being baked into prices this week? NAFTA has been a hangover in this market place that has put a damper on things. Its resolution could cause positive market sentiment, but what has been going on this week is more interest rate related. Banks will go up from a liquidity perspective rather than earnings but it won't hurt to have a NAFTA resolution.

Market Outlook. The market is adjusting to a bunch of different things. 2017 was a year when there were political reasons to be worry about as opposed to economic reasons. 2018 brings a confluence of different thinks. The Fed raising rates. This idea of inflation is coming back. Yields going higher. His view is that we are going to see a bumpy road but with global growth and inflation is being controlled. So that bodes well for the stock market. Low inflation, reasonable global growth, good top line growth and bottom line growth. There are good quality earnings coming out. In the long run, the stock market goes up or down because of earnings profile of companies. The current level of P/E for the S&P500 at 16 is higher than normal but not bubble or anything like that. The volatility can be your friend to find good opportunities. The fact that the 10-year yield moved over 3% doesn’t really matter in the big scheme of things.

Market. This market is US centric with earnings up 20% year over year. Now the bond market yields are looking good. Interest rates going up is a good sign for the economy – get used to it. There is nothing to fear about rising interest rates. We have been in a financial “repression” for the past 10 years. The cost of money is going up, which is healthy. The shorter end of the curve is also moving up -- 2.8% for the five year bond. A fair value for the S&P500 is 3450 in his opinion, based on strong earnings. Canada has good value too, but you have to hold your nose – it could become cheaper. He is very bullish on the US dollar and bearish on the CAD dollar.

Safe Canadian stock recommendations? He thinks it is hard to be safe in Canada as rising interest rates are hurting many dividends. Over the past 10 years people moved into telcos, utilities and pipelines to be paid to wait. Now these companies are overvalued and rising interest rates make it challenging for their fundamentals. He can’t give recommendations for Canada right now. The passing of the US Tax Act has made things more competitive there.

Canadian Interest Rates. The US has been leading the world after recapitalizing from the financial crisis. Although we didn’t have a similar collapse in Canada, the Bank of Canada is still being too easy on lending. Last year when rates did increase, the impact on the Canadian economy was negative. A lower Canadian dollar will help the economy, so don’t expect big interest rate increases here soon until we start to see 3% GDP growth annually.

Earnings season and the 10-year U.S. yield cracks 3%: The earnings were all that was advertised at 17%, though we're seeing 22% YOY increases so far. It's no secret that interest rates are rising, but how far? It's a psychological issue if investors think this bull run is over or not. There's a misconception among investors that things end, but they don't. There are weak and strong periods. How you manage the bad times defines you as an investor. It's easy to be an investor through the easy times. We value the upside more than the down, but the downside is the money-making side. He started in 2016-17 being strict with his asset mix including bonds and geographies, trimming his tech stocks last spring.

The 10-year U.S. bond yield breaking 3% today is not a massive risk to the market. It's about the velocity of that move, which was gradual--the market can digest this. The data out of the U.S. hasn't been as bad as Europe. So, he's not panicking and selling. To date, over 110 U.S. companies have reported and overall they are coming in ahead of expectations. Will we get 20% EPS this year? Likely not, but maybe 10%. Is this peak earnings now or part of a longer cycle? There are currently opprortunities in Canada and America to pick up industrial tech companies that he thinks have pretty good tailwinds.

Market. Commenting on a 1.55% selloff in the Dow, he said that one of the factors is the rise of the yield of 10-year Treasuries to 3%. Another factor is sell-on-the-news as investors see results. The profits have jumped significantly, but the rise last year were predicated on the expectations of a very high earnings increase this year. Good news is already priced into the stocks. He doesn’t expect much valuation expansion at the present multiples. He has been increasing his proportion of cash in the funds that he is allowed to do so in. He is hedging, shorting stocks, and imposing a higher burden on new investments. Investors need to be more defensive, to respond to higher volatility. He is looking for companies that have a dividend, solid cash flow, and other factors that make them resilient in the face of volatility.

Market. This consolidation is a re-pricing consolidation. It is premised on the bond market being much bigger than the stock market and people are watching it. People are focused on 3%. The market is grinding because there is a re-pricing going on. We have come up a long way since Trump has been president. Comparing the 10 year and utilities, if you are into income and need cash flow, the utilities stocks' line on the chart shows that utilities have to come down when bonds go up to reset the pricing against the bond market. He thinks utilities are finished re-pricing.

Sectors to invest in. So many tech stocks can do 20%+ growth. See top picks. You can feel comfortable with larger firms. There are no headwinds to speak of. Make sure you have some growth.

Market. The 10 year yield in the US is up to 3%. Friday the anxiety in the US on the rising yield reduced. There was a lot of coverage of the yield curve last week. Everyone is concerned. Long rates are going to go higher here and the curve will steepen out a little but the question is how high before things grind to a halt in the economy. We are starting to see some light on that. When the 10 year yield hit 3.05%, that is the key point and from there it moves to north of 5%, but he does not think we will see that. We are going to be tested here. He would want to buy into it rather than fear it. 1000 points could come off the S&P during the next recession.

ETF providers have monthly income funds. They are an ETF of ETFs. They are focused on yield and higher dividends. ZMI-T is an example. It is 61 basis points cost. It is global and managed by a portfolio manager.

Educational Segment. Digital Currency. In Sweden in the 1660s they were the first to issue paper currency. They are likely to be the first in the world to issue crypto currencies – a foreign, crypto backed digital currency. He thinks central banks will control it. The demand for paper currency went up after the financial crisis. Crypto currency solves the problem with negative interest rates.

The 10-year US yield at 3% doesn't mean very much. Would his clients accept US t-bonds at this rate? No. But as yields rise, it would make US stocks slightly less attactive. He's not selling stocks to buy more bonds, but pleased to receive slightly higher yields on bonds. It's a little better, that's all. Investors have been complacent given the strong markets of the past two years. Guess what? We'll have more 3-5% drops (like in early-February) to come. Own quality stocks and hold some cash to buy cheaper stocks. With dividends, those stocks will out-earn fixed income bonds.