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

Sell GOOGL-Q and buy an ETF tech stock? The basket makes a lot of sense. He just bought the First Trust Dow Jones Internet Index during the dip. Amazed how tech stocks held up during the correction. First Asset Tech Giants Covered Call (TXF-T) covers the big tech stocks, offers a decent yield and can be hedged to CAD.

General Investing Comment. Canadian stocks have not gone up as much as global counterparts, so it has not been hit as much on the way down. He sees better value in Canada. He is not a sector buyer, instead he looks for the best companies.

Global Economy. He does not think the global economy is long in the tooth. The UK market has been slow and is gaining momentum. Canada’s economy is not as diverse, so its recovery has been slower. The US President is pro-growth while in Canada our politicians are anti-growth.

Interest Rates. There is risk the US Fed will lag what is going on and can raise rates in anticipation when the economy starts stalling and that is what causes recessions. We are now returning to more normal interest rates.

Oil Prices. He believes the price of oil will remain strong, but is not in the habit of predicting outright levels because you are guaranteed to be wrong.

Pipelines. Governments are choosing to ignore the safest way to move oil and natural gas. They are more interested in getting elected than doing what is right. The Federal government needs to put the hammer down, starting at the Prime Minister’s office.

Gold. He does not own any gold as a value investor it is rarely something they own. He would rather own bullion or an ETF versus a gold stock which can be prone to operational problems. He has not opinion on current prices.

Market Outlook. Inflation and growth sometimes get interchanged. Now we want inflation. Central banks are changing to fight the inflation demons as opposed to the deflation demos. The market likes the pro-growth theme. How long it lasts given the push back form Central Banks on the short end? That remains to be seen. 10-year rates have come a long, long way from 1.4% to the current level of 2.9%. Housing has been decent in both countries, labor is tight. The S&P500 will continue its long-term trend after the correction. There has been no damage to the broad market.

Market. We had the quickest correction in history and snapped back a long way. He rolled into US tech financials last week. He does not think we are going back to the old highs. It is momentum strong. It is a global recovery. This move in rates cannot be underestimated. Cash levels are at all time highs. We have no idea how new ETFs will behave in a downturn. People buying ETFs have no idea what stocks are included in the underlying ETFs. It has the potential to make a downturn more veracious. Earnings and economic numbers are good, so it will be an interesting play. He would sit with a more neutral approach and move into value and cyclical.

Market Outlook. Very eventful start of the year. January started like a rocket. And then the US had an employment report with wage growth a little higher than expected and then everybody freaks out. Very volatile since then. S&P500 companies’ earnings are coming great, better than expected. So, you have this factor where prices are coming down and earnings up making valuations more attractive. Interest rates play a big factor as everybody got used to low rates and as interest rates ran up he suspects some institutional investors are shifting in asset allocation.

Opinion about the volatility on the cannabis sector? These stocks are trading at very high multiples with no real justification. Many good things are priced in the stocks. Very speculative. Proceed with caution.

Market. There is stuff to buy and he thinks they have been sitting on too much cash lately. His is putting cash to work in Canada, the US and the UK. In Canada he thinks energy remains in the dumpster. He likes interest sensitive areas like utilities and US telecoms.

Are life insurance companies well positioned for rising interest rates? He leans away from the life companies, because they are complicated businesses. Yes, interest rate increases are helpful. Intact (IFC-T) is a good company with ROEs much better than their competitors. Auto insurance companies will always be required in good and bad times, so he favours this type of insurance company over life companies.

What vulnerability is there in the food services sector to higher minimum wages? He thinks rising input costs will pressure the bottom line, unless companies have the ability to pass along the costs. Active management can overcome rising costs

What is your outlook for the rest of 2018 for the markets? Investors who chase fads (i.e. crypto) need to think of a long term plan and understand why you own and why you own it. You can gamble, but do that only for a small portion of your portfolio.