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

Overview His focus is on oil companies that have had a 50-to-70% dislocation between what oil has done and what the stock has done. He is also focused on service companies that are able to push through price increases, have net cash on the balance sheet, are trading at 2 to 3x EBITDA, with over 20% free cash flow yield. He thinks the risk vs reward in the energy sector is noteworthy: Oil is in the midst of a multi-year bull market; oil prices are at or near a 4.5 year high; because of cost reductions over the past few years, profitability today is higher than it was at materially higher oil prices in the past; and yet energy names are trading at one-third of their historical multiples and he can buy service companies at one-quarter of their historical multiples. He can buy companies generating positive free cash flow, with net cash on the balance sheet, trading at 2.5 times EBITDA and 35% free cash yields. He can buy producers in Canada trading at 3x their enterprise value relative to their cash flow with 9 to 10 years of proved producing reserves. So investors are getting an element of the cash flow or of their production for free. Analysts and investors are beginning to show interest in the sector, which will drive stock prices higher. The energy index has started to outperform the broader market, something that hasn’t been seen for a long time. Momentum will beget more momentum. He expects a $70 price of oil next year, which while result in 100% upside in multiple names. From Jan 2017 until now, the price of Canadian oil in Canadian dollars is up about 18%. In WTI terms, it is up 23%, yet many oil names have fallen by 50%. Just getting back to where they were will take them up by 100%.

Comment on US pressure pumper theme. He is still positive on this theme. There is uncertainty about possible oversupply. However, when you account for a 20 to 25% attrition of equipment due to wear and tear, the US market is still undersupplied. Q1 will be terrible across the board, partially because of poor weather. However, he expects pricing expansion and margin expansion soon. US pressure pumping stocks are trading at levels that are the cheapest he has ever seen. Many have net cash.

Market. Retail sales increased more than expected and is the first gain in 4 months. There was a big build up in the US late last year as well as a huge draw down in savings. Tax cuts in Q1 seem to be going to paying down some debt and boosting the savings rate, rather than stimulating the economy, so we are looking at a weak Q1. XLY-N is more and more dominated by AMSZ-Q, who are going through challenges from the President. The real metric with banks is the net interest rate margin. The yield curve has continued to flatten dramatically in the last couple of months and this is not good for banks. We will see what other sectors say this earnings season.

TFSA. This is where you should speculate. You have after tax money going in and the compounding rate of growth is never going to be taxed. He would focus on growth rather than dividends and more conservative investments.

Educational Segment. The yield curve. The bond market is probably our best predictor of economic conditions to come. Short term rates are coming up because the Fed controls the short term part of the yield curve. They expect to raise rates more. They are unwinding the size of their balance sheet and should increase longer term rates, but in recent weeks we have seen more pressure on the front end of the curve but the economic data is coming in weaker and the yield curve is flattening. The yield curve inverts about 6 months before a recession. As the Fed raises interest rates even more then we can expect the economy to slow. We can buy into the dips at present, however.

Market. Value is going to take over in the market from momentum. We have seen an uptick in volatility. People are going to be much more price conscious in what they pay. This is a good time to look for opportunities to reposition your portfolio. If tech stocks become regulated utilities that would compromise future growth. He is not wisely exposed to tech stocks for this reason.

Banks. In Canada the big banks are a big oligopoly and are pretty dominant in their markets. They should provide a bit more stability over the next little while. It is a place that investors should be looking.

Today, the market was focussed on Q1 earnings, and the S&P companies are expected to be strong. On the flipside lately have been geopolitical issues or trade wars which could derail markets. Today was positive. Valuations are looking more reasonable. At the end of 2017, valuations were a little high, particularly in the U.S. She has a longer-term view--economies are still improving which is encouraging. She's a long-term investor, not a trader. Sectors like energry prices have risen globally, but not in Canada because of take-away problems. Emerging markets will drive commodoties (i.e. copper, steel). She likes India and China given its per-capita GDP and improving economies long-term.

Gold She has little exposure to gold. Inflationary pressures have been benign; when inflation rises, so does gold. If she sees more geopolitical tension, then maybe she'll buy more gold. The gold price really hasn't recovered from previous peak.

Sell North American banks and buy foreign ones? She knows North American ones better than the foreign. Also, transparency with the former is stronger. The U.S. banks have led U.S. growth, while only in the past year has Europe been growing. Valuations of Canadian banks are attractive now, and are better regulated than U.S. ones. Canadian ones also maintain their dividends. She prefers North America.

Market. Since November, the run up in interest rate expectations has impacted many of the stable companies they like to invest in. These firms tend to hold slightly higher levels of debt, but it is part of their business and he is not concerned. He is now looking where to engage their cash position. He would be looking at pipelines. Owing Canadian real estate in general is great value – offering 7-8% rates of return.

Gold. Given all the chaos over the last two years, he would have thought gold would not be so stable. Cryptocurrencies are creating conspiracies that gold is out of favour. He looks at the price to see if it is profitable to run a business, at this level it looks fine.

Government ownership of TransMountain Pipeline. As an investor, he sees the issue as a regulatory issue and sees no room for government ownership. He thinks it highlights how the government has no idea how investment decisions are made in the market. He thinks it is crazy and is afraid it may chase money away from our country. He could accuse the government of forcing the project to drop in value and then buying it at the bottom -- hinting at securities fraud.

Market. [The guest was not able to appear at the beginning of the show so Catherine Murray spoke about an interview she would conduct following Market Call. The show started after this comment with the first caller.]

Market Outlook. Up until last week markets were rattle by the US-China trade tensions. A global trade war won’t help anybody, and the US knows that. Markets dip down to the 200-day moving average (for the S&P500) and turned out to be a good time to buy. Buying on dips makes sense for investors. The nice thing is that the S&P500 is down to 16 to 17 times forward earning, lower than it was a few months ago. We are going to see strong first quarter earnings. Likes Asia, both developed and emerging. In terms of sectors, cyclicals are the favorite. Technology is the second preferred sector for him. Rates are probably going to edge higher but for the time being markets seem to like these below 3% levels.