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

Institutional Ownership Comment. The ETF sector is gaining huge strength as money is entering. Valuations of stocks are being positively impacted by institutional investors, if the stock is included in the Index.

We're seeing elevated turbulence in the past few weeks, a huge change from the start of the year. Investors are dealing with tigher monetrary policy and inflation pressure. In Canada, we must be cautious due to the NAFTA overhang, high debt levels and minimum wage issues in some provinces, which is why we are lagging other markets. He likes the U.S, Asian, parts of Europe and emerging markets. There's optimism outside Canada. He sees it in
strengthening data, fiscal stimulus and a tax package in the U.S. Earnings season is basically over and most companies beat. That said, there will be more volatility going forward this year. Buy the dips. Hopes that Trump is merely posturing with his tariff threats.

Market. He thinks the market is at a decision point. The market has retraced and is in a consolidation. The rising trend might continue after a consolidation or reverse. We don’t know yet which way it will go. A lot of money has been invested recently. The December rally looks like desperation investing, which is common near the top of a bull market. The market statistics are dominated by the FAANG stocks because they are the 5 biggest companies. In Canada, energy stocks will continue to hold back the TSX because they are so heavily weighted. There will be good trading opportunities, but you have to be very cautious in investing in these. Rex Tillerson was fired today--he expects this to introduce short-term volatility and that generally, political events have a short impact on the market.

Comment on Portfolio Management. The essence of portfolio management is how you trade your stocks: Position size over time. You could pick a random set of 10 stocks in the TSX and your success will be determined more by how you reduce or increase your position than on the stocks themselves. He looks at a 25-stock portfolio, nicely diversified. If a stock is volatile, he limits it to 3%. Low volatility is 6% maximum. His initial buy is half of that. So with a high volatility stock, buy 1.5%, get out a notebook to record your thoughts, set goals and a sell price ahead of time. If the stock goes up, buy more.

Market. There may be a looming banking crisis here and in China. We are the two biggest countries at most risk from a consumer debt level. This is one reason that interest rates cannot go up a whole lot. The consumer is much leveraged to small increases in interest rates. He thinks the economy will slow a lot. We will see how the markets handle that this year. There is job growth in the US but not much growth in wages. There are pockets of inflation pressure building on the wage side.

ETF Diversification. Two or three products for diversification. VBAL-T, VGRO-T, VCNS-T. You have to know what your comfort level is and what category you fall into. In a retirement situation a balanced fund would fit the best. The cost on all of them is just 22 basis points. The question is if you can handle the ride. Bonds won’t protect us like they did in the past.

We are heading for a recession as the next economic cycle and this may be the fear-of-missing-out stage. He would not chase things. Be more conservative. The BMO covered call ZWE-T – more than 6% yield. It should be a good holding for the next 6 years. ZWC-T is also good – more than 5% yield.

An Inverse ETF. Only unleveraged ones are recommended. He would use SH-N for the S&P, PSQ-N for the NASAQ and his favourite is RWM-N for the Russell 2000.

Educational Segment. Guest Tim O’Brian from DBRS. Credit ratings try to look at the most likely scenarios. They also stress test. They try to get a reading on what the fundamental business strengths and challenges are plus financial risk profile. From this they come up with ratings. A stock can go up based on fundamentals but the credit rating may not change. You can go to their web site to see all of their press releases on credit rates of companies.

Market. Dividend stocks are out of favour. NAFTA has a lot to do with this. International capital inflows are impacted. A negative outcome could send the Canadian dollar down. This applies to all Canadian stocks but includes dividend stocks. He suggests to just stay the course. The US market should smooth out. You are getting a lot of opportunities to get into these stocks. You can get a yield of 4%+. He has been increasing his cash position from fixed income and is redeploying some of it into capital markets such as into ENB-T.

Canadian Banks. The dividends will continue to grow. They have great pricing power. He would not sell. These names look fairly cheap. Interest rates rising should be good for the sector.

Preparing for Retirement at this Point in the Cycle. If you get the majority of the income from your portfolio yield then you don’t have to worry so much. Dividend stocks are trading at the same point as when bond were at 7%. Your portfolio yield should be growing over time. Your portfolio cannot be too aggressive at this time of the cycle, however.

We had a big day on Friday, so he was unsurprised about today's slight pullback. We're seeing good global growth. S&P is trading at 17.4x. European companies are enjoying better earnings growth. Topline growth in US happening because of global growth. We'll see higher interest rates around the world and slightly higher inflation. So, the market is adjusting. He looks at the U.S. and Europe. The U.S. still has cheap stocks in some areas. The UK is one of the cheapest markets, because of Brexit. Europe has massive exporters--the whole world is growing now, unlike five years ago--and German, French and some Dutch companies will thrive. Japan's ROE is not as strong as other parts of the world, but they are big exporters. We'll see also what happens to the Yen. In Canada, we carry a lot of mortgage debt which is not necessarily bad debt. People can cut back on things like eating out if interest rates rise from, say 3 to 5%, but it's a different story if they lose their jobs and can't pay their mortgage.

What will happen to Canadian and America banks if NAFTA collapses? Canadian banks are at more risk. Ontario would face a tough time, because a lot of jobs here are tied to NAFTA. Canadian banks also trade at a higher multiple than U.S. ones. The biggest ones down there are more global than the Canadian ones, and the American ones have large capital markets businesses. Ontario may tip into recession. But he doesn't believe NAFTA will fail. NAFTA needs some revitalization, but all three countries know it's good for them. It takes time to revise the deal.

Nothing makes sense as an investment today except gold. Thoughts? It's wrong to own only gold. Gold was supposed to rise because there was going to massive inflation, but that hasn't happened. Gold is supposed to "work" as everything else fails, but that just hasn't happened. Inflation isn't actually rising if you look at the yield curve of the bond market flattening. Also, gold is held by those who think the world is falling apart, but now Bitcoin has replaced that and become gold's big competitor.