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

Buying Calls on the VIX? If you are going to do this, you have to recognize it is unlike any other instrument you are going to trade options on. Volatility is a separate asset class. It is never going to rise to infinity. It is never going to have the trend line you would have with a typical stock that goes up in value. The only way you can trade it is to operate and use futures, so you go to an ETF that is trading volatility. He would use iPath S&P 500 (VXX-N), short-term volatility on the S&P 500 composite index. They have a volatility index, which means the ETF makes money if volatility rises. The inverse is that it will make money if volatility contracts. If you look at a chart on both of these ETF's for the last couple of years, they both look similar, because they are rolling the futures over, and it is a very expensive roll over. Every day they have to roll 1/20TH of the portfolio. You buy this because you want short term insurance on the market. He is not sure this is the best way to do it.

Where do you see the Cdn$ going? He is not enthused about the loonie. Canadian oil has dipped substantially. That is a big export of Canada. There are a lot of big changes going on in the US, which is going to be very beneficial for US business. We are going to have a tough time holding $.77 against the US$ early into the 1st quarter of next year.

Market. Technology will continue to be a big driving sector. We've seen a lithium bubble and all sorts of speculative trends in some of the really small junior companies. It's a dichotomy kind of market with large companies doing well, some of the crazy stuff doing well, but some stuff in the middle nobody cares about. People are still worried and still have the recession belief in their brain. Executive confidence is pretty high right now. A rise in interest rates is a given and this is fully reflected in the market right. There are no issues unless the Fed does something crazy. Everyone is talking about synchronized global growth, and that is occurring. It is really time for someone to pay attention to the resource market. There have been lots of takeovers and lots of shortages of production capacity. As you get expansion of capacity demand, then you have to get some sort of slingshot effect in resources. Thinks that sector is going to do better.

Marijuana? An emerging industry, and you cannot value these compConstellation Brands has come in, and we know that other companies will come in as they want a piece of this market. It's probably not because Canada will be huge, but it is when other countries go the legal route. Expects there will be a lot of consolidation. This is going to be crazy, and then you get July and people will realize it is not going to be quite as exciting as what they thought. You can probably trade these until the 1st quarter after legalization, and that is when the party ends.anies. It's all based on what might happen. If every single person in Canada bought $100 worth of weed a year, it is still only a $4 billion market. But if you look at the market cap and what people are expecting; the market cap and potential is just ridiculous. Because of that, he is very, very cautious. The other side is that there will be more consolidation in the industry.

Market. He’s been very Long this market for a while, and for asset allocation model 70/30 to fixed income, he is right on the edge in terms of his swing for 90% equity. Stocks are expensive, but are not expensive relative to bonds, apartment buildings, a lot of different private equity alternatives. If you can find a stock with a 11 or 12 PE with a 4% dividend and visibility growing at 10% and EPS, there is still lots of opportunity. As a protection strategy, he is using the options market to squeeze out yield on both sides, using Calls or puts.

Dividend paying stock to provide an income? He would start with one or 2 banks and 1 or 2 insurance companies. There are some really good industrials that still look good, such as a Magna (MG-T). A lot of people are looking for the high dividend paying stocks, that are good to be owning in this environment. He would suggest a Russell Metals (RUS-T) with about a 5% dividend, which is strengthening from metal prices.

Market. US markets are not cheap but there are some names and industries that are good investments. Some of the block chain companies are scarce in revenues and profits and high on valuation, so be careful. And for Oil pipelines, you don’t have enough outlets, pipelines that are going under maintenance and storage that is getting full. You could see oil in a $50 to $60 range but if inventories get depleted faster you could see it up to $65.

Canadian Banks. It is an oligopoly. He has RY-T, TD-T and BNS-T. Depending on what you own, he prefers ones with more exposure to the US. He favours RY-T, TD-T, BNS-T and BMO-T for those reasons. He steers clear of CM-T.

Market. The market is sort of trading sideways, but he expects we will still have a US Santa Claus rally. There is nothing wrong with the background, and with the tax bill passing in the US, that will encourage their markets. However, we still have NAFTA hanging over us and low oil prices that are holding our market back. Things are not quite as bad as some equity managers think. There has been a fair migration of funds out of Canada into emerging markets.

REITs? This sector is one you have to be a little careful about these days. Specifically, the kind of investments they are in. The mall sector is one you have to be concerned about. Look for one with a residential aspect or industrial storage.

Are Canadian banks safe? He likes TD (TD-T) for its growing US exposure. Thinks they are going to get better results and the dividends are all safe. Bank of Montréal (BMO-T) is the 3rd on his list that he owns, and they are expanding their US exposure as well. Also has the Bank of Nova Scotia (BNS-T) which gives you an entry into central America and Chile, giving you offshore banking. These would give you a diversification that really reduces the risk in the event the Canadian situation turns a bit sour.

How do you assess the NAFTA agreement if the US pulls out? This is a very political situation. One of the main themes of Pres. Trump was to tear up NAFTA. So far, he’s followed through on just about anything he said he was going to do. Doesn't feel he can tear up NAFTA, but can set the scene if negotiations fail, which he thinks is going to happen. What happens after that is critical. If we pull back to the old Canadian/US free trade deal, we are almost back to square one, i.e., we don't really get hurt that much. From a market standpoint, if NAFTA gets washed out we could see our markets get hit from a psychological standpoint. That would be a buying opportunity, because when the dust settles, Trump's real target is Mexico, not Canada. He can't believe Trump would blow a hole in the US automotive industry just to satisfy a political promise.

Market. Believes we began a re-evaluation of the equity asset class in 2013. 2013 was when we took out the highs of the bull market of the 1990s, and it was the first major global developed market to take out all time highs. That was and has been the leader ever since. Bull markets tend to last 15-18 years with interruptions. Since 2013, multiples have steadily been improving since people became more comfortable with the future. We had the first serious correction in 2015 and beginning of 2016, and that was a reset starting a 2nd cyclical rally. We’re about 2 years into that and probably have another year in front of us in the cyclical rally. The secular re-evaluation of the equities goes on for another 10-12 years. Earnings are going up, so we pay for that. The quality of the earnings is getting better. We have revenue growth as opposed to just cost cutting. The average company in the S&P 500 is yielding just over 6% on its capital, so you are getting paid about 3% excess return to buy stocks, compared to bonds. You're getting paid well to take risks. Expects that a year from now we will get a significant correction, but we have another year to get pretty significant returns before it happens. Once you have that correction out of the way, then you have another 3-4 years in front of you.

Bitcoins. He looked at this from an interest standpoint 4 or 5 years ago in the early stages, and has done a fair bit of work on blockchain, but who would've known that there would have been this kind of parabolic move. Anecdotally, some people are saying that when they go to sell their Bitcoins, it can be hard to actually realize the cash. The plumbing is really very early stage, but is slowly being built and he will see what it will build into. Blockchain technology, as it applies to a whole bunch of different industries, might be really, really interesting.

Lighten up on ETF fang stocks to put more into US financials? There is a question as to whether we are seeing money rotate from tech into some financials, which are a beneficiary of rising rates. We are in a reflationary cycle that benefits banks and the banks have a long path in front of them for revaluation. You want to own both. It is a great pairing to have the growth attached to the fangs, and at the same time have a significant position in the financials.