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

Con you recommend an ETF on US Banks? Some of the broad financials ones are Financial Select Sector SPDR Fund (XLF-N) and Vanguard Financials ETF (VFH-N) and SPDR KBW Bank (KBE-N). If you want Canadian dollars exposure BMO EQUL WGHT US BK INDX CAD UNT ETF (ZBK-T) would be one to consider.

Doesn't see much deterioration in his economic indicators, though he's watching the yield curve. He has moved from offence to neutral. Short/intermediate indicators have broken down, though long-term have held. He's building up his cash position to take advantage of any market drops. He's never in at the very top or out at the very bottom, though aims to be somewhere near those extremes. Some indicators point to overselling in the market which could lead to a bounce. Facebook as a long-term concern? Users haven't haven't dropped off, though regulation is a concern.

Market. He feels the market is in a range of 2800 on the upside and 2575 on the lower range for the S&P500. It has tested the lower range a couple of times and he now looks to 2800. Technology, financial, and consumer discretionary are the cyclical leaders currently and these generally put in higher lows during the recent market re-test. He holds 10-20% cash, higher than normal. He thinks the bull market is still intact.

Energy Stocks. He would avoid Canadian only companies, due to pipeline issues. He is not in love with energy. Integrated energy stocks have under-performed and he would avoid them. Russian sanctions may actually induce Russia to produce more, putting downward pressure potentially on oil prices. He would lean more to E&P and drillers instead.

Telecoms. In the telecom space the biggest risk is in interest rates. It is conceivable that we see inflation getting closer to 3%, so rate increases are likely. No matter the fundamentals, this sector will likely be hit.

Volatile times. Volatility doesn't give us a direction, but volatility runs in cycles. Be able to sell at the top, if markets are weak above a certain point. The market is running in a channel now with a top and bottom. Take your bets and accept a floor on your loss. We can see big drops as well as gains. Tech dominates U.S. markets. For Canadian oil, buy now. The potential for oil go up may be there, but have the discipline to sell off, too. Anytime you buy a stock, you're emotional. But discipline is fundamental to technical analysis. Look at price. Draw your horizontal lines--your exits--and adhere to them.

S&P 500 technical analysis: Support at 2,538. High is 2,876. The midpoint is 2,707 and we're close to it. It's holding within this range firmly and consolidating between 2,650 and 2,580. It looks like we're breaking out of that.
At 2,560 we would go towards cash which would mark a downtrend. Don't know if that's the case or if there'll be an uptrend. Can't tell right now.

Market. He thinks there are signs that China is backing down. China has already placed tariffs on so many things that it has little room left. He thinks the Chinese IP policies have been a poor deal for America and that it was necessary for Mr. Trump to stand up to China. Responding to a question about Trudeau, he commented that his focus is international rather than Canada.

Comment on Gold. He has little sympathy for paper gold and less for cyber-gold. He was an adherent to using physical gold as a hedge, but he thinks it is not a good choice right now. He has a bullish medium-to-long-term view of the U.S. dollar and he thinks that real interest rates will get positive, making gold less attractive. The scholarly work done on using gold to reduce portfolio volatility has been done on bullion, not on gold equities or gold paper. The impact of gold price on gold miners was much greater when gold was $500 or $700. He does not think that rising gold prices has as great an impact on company value now that gold is over $1000.

Market. The trade war or negotiations: China says they can weaken their currency to offset tariffs. We are not seeing this in the markets. It could cause some anxiety. The BOC issued an upbeat report. It had a very positive spin. The economic data, however, is softening. It is good to see business being more confident but it could be false. Trudeau has to put the strength of the federal government behind the pipeline in order to get it done It is a question of what he is doing rather than what he is saying. It could put his election in jeopardy next year.

US Investments. For the next year or so, all risks and factors considered, the Canadian dollar is between 75 and 80 cents US$. The spread for FX conversion is about 5%. ETFs with US equities don’t suffer this. 75 cents and below you should be hedged.

Hedged or unhedged ETFs? If the CAD$ is getting weaker then you want exposure to the US$ unhedged.

Educational Segment. Earnings Season. The US is 52% f the world. For the first time in memory, we have seen earnings expectations NOT come down much during the quarter. It means that what is going on in the markets is not what is not what is happening in earnings expectations. It’s going to take a couple of quarters to see what effect current events will have on earnings. We are probably going to see disappointments in the net interest margins of US banks.

Market. He is more interested in individual stocks. Clients are feeling pretty good by looking back a year or two and this is harmful. If we have come off the best decade in 100 years then clients need to think about it when investing. There are 11,500 small caps he could own. He is interested in the businesses as well as the people who manage them. He eliminates about 90% without even meeting them. They are simple financial screens. Returns above cost of capital is a big one.

With volatility these days, investors need to get away from the daily noisy, look at their stocks and ask if this is what you want to own in five years. No question that interest rates are rising. The Fed could raise rates faster if inflation creeps up faster than they ancitipate--and that's a big big danger. It's all about inflation. We have full employment. In Canada, we could see a surprise increase in order to keep inflation in check--which is their prime job. He's not a big fan of Canada and sees better value elsewhere.