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

Is there a correction coming in 2018? He has a suspicion that economic data will continue to moderate and add to downward pressure. You also have to consider investor sentiment and pay attention to their political views. Be watchful about market sentiment.

Will Canadian markets continue to underperform the US? These markets are closely related to one another. There is some divergence with the TSX underperforming the S&P500. The TSX could continue to under-perform going forward.

Do you buy partials or buy your full volume? It depends on the strength of the signal. A strong signal means you should buy your full volume, otherwise scale-in to your position.

Not much has changed since the early-February correction. This consolidation is a multi-month process. Patience and process matter in this volatile climate, like caller last month who takes a half-position then waits one month for fear of catching a top. He's largely invested, but at over 22% cash currently. Lofty valuations in parts of the market now, so there's risk. Stock volatility has returned. He's watching bond spreads. Small caps are starting to outperform--good. We're in a mishmash with little sector rotation. So, he waits.

How do you use volume in technical analysis? In a nutshell, looks at buy volumes and sell volumes with thresholds of 80% and 90%. A real wash-out is an exhaustion of selling pressure to look at 90% down days, based on volume traded. Say,100,000 shares are traded with 90% were sold, so that's a a sign of exhaustion, though typically you need to see two in a week. It's a great tool to watch flush and wash-out. (He also combines it with declining and advancing issues.)

General Market Comment. He likes how oil inventories are down, but the problem is winter is over soon and demand falls by 2-3 million barrels per day by June. World inventories will rise by 200-300 million barrels by then. There is 500,000 barrels per day of export growth out of the US and Saudi Arabia has cut exports to the US as a result. He looks at US inventory, production and international movements as the key statistics. He sees US production going up 1.2-1.5 million barrels per day this year, along with Canadian production growth, this will absorb all the growth in World oil demand this year. By April, he expects to see inventories build in the US and OECD countries and prices will return back below $50 US/barrel.

Energy Bull Markets Comment. He is near term bearish on oil prices, but thinks this will help fuel the next bull market in energy. The Reserve Life Index has fallen to 5-6 years – the lowest level in decades. Companies want to see flat production in 2018 and will pay dividends and pay down debt with surplus cash flow. He is bullish on natural gas stocks, but sees about 20-30% downside on oil company stocks in the next quarter. This will set the stage for the next long-term bull market. He sees WTI at $100-$150 in 3-4 years from now. Many companies are priced below book value today, but have room to go to 2 times book value – a 400% upside potential.

US Natural Gas Market Comment. He is very bullish on natural gas prices in the US. Cold weather has knocked inventory down, with 93 bcf drawdown this week. He expects US LNG exports to rise from 2-3 bcf per day up to 9 bcf per day in the next two years creating more markets for Canadian gas into the US.

Tonight was a special Talking Tax show. No opinions were recorded.

This is the widest divergence between oil prices and Canadian energy stocks he's ever seen. We're in a multi-year bull market with a big drop in oil inventories in the past year. Investors don't appreciate how demand is up. The bogeyman
is U.S. shale, but there is a labour shortage in Texas (2.5% unemployment rate there) so this is a constraint. In Canada, we have a profound pipeline shortage with maximum flow for oil and natural gas happening this August. These constraints along with continued rising demand amounts to supply shortages for the next five years. He's very bullish about oil prices. It's going to take time for Canadian energy stocks to rise, but the wide differential between WTI and Canadian WCS has been narrowing.

With regulations, taxes and problem getting our oil out through pipelines, would a Canadian oil company buy back shares? Differentials (WTI vs. WCS) are wide because of limited pipelines, but has narrowed from $30 to around $21 and will continue to improve when railway capacity comes on. Light oil is not as impacted by pipeline constraints. Carbon tax is a reality. Federal vs. provincial political conflicts will endure. So, what else can a Canadian energy producer do but buy back shares?

Market Outlook. The US Dow Jones is probably the most watched index in the world and probably the worst index in the world because it is only 30 stocks and the price weight as opposed to cap weighted. Last year was the least volatile year in history, it’s become more volatile and that is a good thing. Somebody in somebody’s office in the US is acting completely unpredictable but, in the end, common sense will prevail. In the meantime, companies in Canada are being hurt.

What percentage of your portfolio is in cash in both your registered and non-registered accounts? His company doesn’t differentiate between registered and non-registered accounts. They look at cash differently. Recently they have been using cash and bringing cash balances down. His clients now are between 3% and 7% in cash.

Larry Kudlow just named as Trump's new economic advisor today should give the markets some confidence. He's stable and mainstream which will appeal to Republicans, though he's a free-trader which is contrary to Trump's views. As for his threatened tariffs, Trump has a strong bark, but then backs away. He has sued people around 4,000 times. This is his strategy and we will learn to react to it in time. Technology is so concentrated in the US. that the U.S. government must block the Qualcomm deal, which gives him pause. Corrections are useful in that they turn stretched earnings (that are rising currently) to an acceptable level.

General Market Comment. He thinks the recent Atlanta Fed Reserve GDP downward forecast to 1.9% growth is not unusual as they usually start with high outlooks. The US economy is facing headwinds, but he feels President Trump’s tax reform is moving in the right direction. He sold all his Canadian dollars at $1.02 CAD/US and thinks the trend towards a slower Canadian equity market relative to the US will continue. As interest rates tick higher and the US economy continues to grow (he thinks 3% GDP growth this year), the bond market will take a break and he thinks we might see a move above 3% in the US Government bond markets.