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

Market. The money flows in equity markets are suggesting the markets have to give something back. Every sort of metric would suggest markets are getting overbought and long in the tooth. However, he is not concerned, because there aren't too many good alternatives right now. With US treasuries trading at 2.6%, and still so many good stocks trading at 10 or 11 times with really good growth, people are trying to give up on this too soon. The retail investor is not back in a big way. If you look at the greed that finally came into Bitcoin, that is probably the 1st real greed we have seen since the financial crisis. There is still enough appetite to speculate.

Canadian Banks. He is expecting 6%-7% per share earnings growth over the next couple of years. They have a good cost control and a positive operating leverage. Global markets are helping them. They continue to be a really good story. He’s been a big Bull on US banks since 2012.

US$? The US$ goes inversely with commodity prices. Half of the S&P 500 earnings come from offshore, so where the dollar goes, is very, very important. These things tend to usually go in cycles. The Trump administration favours a slightly lower greenback, so he thinks that is the direction that it ultimately goes, relative to the euro.

Markets. Many market metrics are at the extremes for the US market. Bullish sentiment, fund flows, and even the RSI chart is very, very overbought. It is the most overbought in 20 years on a monthly chart. Contrarians are saying things couldn't get any better, so maybe we should Sell. However, none of these are Sell signals. At times like this, it is even more important to look at technical analysis. The RSI chart is parabolic, but it is still a very bullish chart, and there is no Sell signal.

On the other hand, the TSX is only going sideways and there is some sign of exhaustion, so it is really difficult to keep up with our southern neighbours. It's really a story of 2 halves. The 1st half from the end of December 2016 to the end of June 2017, we grew at about 2.4%. For the 2nd half, we only have 4 months of data, ending in October, and we only grew at 0.3%. Our household debt to income ratio is 171%, the highest in the G7, so rate hikes are going to have a much bigger impact on household spending.

Market. He does not think we are headed for a tumble. He remains constructive. He still feels that valuations are there and we are in a very favourable business environment especially in the US. Rates are low and the tax benefits are going to come through this year giving a boost to earnings. With growth in earnings we could have a very decent year. There will be some firming up in the US dollar with a slight rise in rates. There is a feeling that the value of the US dollar will be impacted with anti-Trump feelings. In the Marijuana sector, his two clients who insistent on it have done very well but as the globe says, he is a kill-joy advisor and won’t go near them. It is a speculation.

Treasury Bonds: countries are announcing they are no longer using them and are switching to a Chinese system. That is an interesting angle. As confidence in the US is eroding, this could be a factor on bonds, but the bigger factor would be rises in interest rates. He is more concerned with what happens to the US bond market with rising interest rates.

Market. The economic backdrop is okay for the markets, but certain indicators imply there is just too much euphoria among investors. The IMF raised guidance for the global economy in terms of growth, to 3.9% for this year and next. That’s the strongest global expansion since 2011. When you look at what has happened with the markets, the world Index is up 6%, Emerging-market index is up by 9%, and we are certainly seeing the economic data is strengthening in almost all quarters of the world. We are seeing solid corporate earnings growth. The US tax reforms helped a little as well. Also, commodity prices are moving up. We are seeing all the right stuff, but over the very near term, he thinks markets are a little extended, in terms of how far it has moved. We are definitely in overbought territory. A healthy pause and pull back is likely, and probably a good thing. However, over the next year or so, the market should be pretty solid.

Market. It's amazing how sentiment has really shifted for the investor. We’ve been hearing concerns everyone had about 2008-2009. There is always a bit of scepticism about this market. Markets continued to grind higher. What you look for are signs of overconfidence. With the interest in marijuana and the digital currency industry, (unproven business models), people are just lining up to toss their dough at it. At the bottom, there is a lot of fear and no one wants to talk or think about stocks.

Market. He's a little cautious. There are a number of positive factors, North American economy is growing, there is some real follow through on US tax cuts, some companies talking about increasing CapX, giving employees bonuses, and optimism in the US. However, equity market valuations are quite high with PEs close to record levels, and this late in the cycle, there is more speculative behaviour. Investors need to focus on quality, and to have some cash hedges in place.

Mutual fund heavily invested in Canadian blue-chip companies. How would it be affected if the US pulls out of NAFTA? There could certainly be an impact. It really comes down to the composition and sectors the mutual fund is in. Does it own a lot of positions in the auto parts sector, or companies that have a lot of cross border business, such as a manufacturing facility in Canada or Mexico, exporting product into the US. Those would be the kind of companies that are at most risk. Also, if the US withdrew from NAFTA, the Cdn$ could take a short-term hit. The right approach is to have a diversified portfolio.

Market. We are at the late part of the cycle. Last year was a great year, and for the 1st time since the recession, we saw the 3 major economies of the world, Europe, China and North America, all expanding together. After 10 years, we have to be thinking of systemic risks that are building up within the system. It could be a geopolitical risk, it could be trade issues. On the other side we have low interest rates which have contributed to the expansion, but have also contributed to the massive buildup of debt. If we are in a period of expansion where we are seeing interest rates increase, you have to be wary about when it begins to choke off growth. This is a time to be really cautious.

Cannabis? Has not invested in this area and has no immediate intention of doing so. This is a relatively new industry, and there are a lot of forecasts for what the demand may be. There are a lot of companies entering the field. Like all of these nascent industries, there is usually a period where you get a whole lot of initial players and then it begins to shake out.

Market. He is in Florida for the 7^th year ‘Inside ETFs conference 2018’. It is the biggest and best in the world. The biggest theme so far is the idea of strategic vs. active ETF strategies. Strategic indexing has some exciting things coming down the pipeline. The government shutdown is not exciting to the investor. After 2 to 3 weeks we could have a pullback, however. Markets are plus on the day today. It is market noise at present. In Germany there are ongoing coalition talks. 6 weeks ago after the election there was no way and this shows you how vulnerable or flexible it is. Germany is probably not going to be as strong as it was in previous crises in the world.

Emerging Markets ETF Recommendation. It is hard to hedge the currency risk. Their interest rates are far higher than our markets and so the cost of hedging is very expensive. ZEM-T, XEM-T, or DEM-N for their dividend emerging markets ETF. EDIV-N is also a buy and he owns it. DJS-N might be something to look at also.

Downside risk from BMO Tactical Global Growth and BMO Tactical Global Dividend Fund. Two funds he manages for BMO. They are ETF asset allocation funds. Both are sitting with a beta of around 30-40%. When markets correct he would then expect better valuations in them but they get you through a bear market in pretty good shape relative to the broader markets.