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

Times change. The ETF world is a new creation and a cheaper way of getting mutual funds. They are used by institutions to get into sectors without buying a particular stock. He is always cautious about who are you selling to on the way up and who are you buying from on the way down. The opportunities are more on the short side rather than the long side in recent years.

Oil Stocks. He gave up years ago on the junior oil business. Now we are sitting at $50 oil. We are at the end of the pipe. Egress from Alberta is becoming much more difficult. It’s going to be tough for Canadian companies to make money. Productivity and wells does not differentiate companies. He owns prairie sky (PSK-T) for the dividend and royalty stream.

Seasonal strength in December We’ve just been through this insane year of non-volatility and constant rise. Typically around this time of the year we tend to get some changing of the guard, from stocks that have been market leaders into some of the under performers in the new year. The Dogs of the Dow theory was created from that. He think the coming year will be more pronounced and that we’re going to see a lot of changing of the guard from some of the high flyers into some of the more ignored sectors.

Tax loss selling at this time of the year They are starting to rotate into some of the underappreciated sectors because he think there’s going to be some real movement into those sectors when tax loss selling stops at the end of the year and that people start moving into underappreciated stocks.

Bitcoin He wrote a blog post earlier this week on his web site about Bitcoin. You can look at how long a stock stays above its 200-day moving average as an indicator of how overbought it is. Bitcoin is almost 3X above its 200-day moving average, that’s when you know you’re in a bubble. It doesn’t mean it can’t keep going for a little while longer, but it can’t continue forever.

Moving allocations outside the US He is not bearish but a little cautious. He thinks a lot of companies in the US are a little bit overbought, particularly the big movers, and that their might be a better opportunities elsewhere. They are adding a little bit more diversification to their portfolio and started buying more Canadian stocks now than they’ve had for many years.

General Market We are at the time of the year where the market can be a little more positive. A lot of that slows down in January. He thinks there could be more upside in the next couple weeks with all the Christmas spending and tech things going on, but watch in January for some pullbacks.

How long do you hold a stock that isn’t moving? Personally he would only buy a stock when it breaks out from its base. Otherwise it could continue going sideways for ever, or go down. He doesn’t mind paying a little bit more as it breaks out of the base. If he has something that’s been trading sideways, he would just wait for the next exit near the top of the trading range and get out.

Market. The Dow just keeps on going. A lot has to do with the 1 - 2 punch of tax reform. Wall street reform is right behind it. Some stocks may have gotten a little ahead of themselves. He remains constructive long term through growth in earnings on the market. He is more constructive on US vs. Canadian equities. It is a growth story in a global expansion that is not kicking in on the commodity story. There are a lot of global stocks that are not commodity related that will do well. You have to be very selective on energy stocks. You should look for energy companies that price their oil in Brent rather than WTI.

Pot Stocks in Canada. Caller was a client who wanted to buy weed last year and the guest ‘wisely’ talked him out of it but the caller put it into his portfolio a couple of weeks ago. The legislative hurtles wall be kicked off over the next years but he will not recommend it to his clients as a whole. There will be money made but a lot of money lost in the sector. He does not believe Constellation (STZ-N) will take over a pot stock.

Canadian banks. You should have a minimum of 20 stocks for diversification’s sake. Put at most 2% into any one bank. You would not go wrong buying the top five. The tops are TD-T and CM-T.

Market. Round numbers attract a lot of attention (DOW) but the market in the US is moving higher because the economy is growing beyond a 3% clip as it is here in Canada. Employment data is strong. TSX profits are growing at an 18% clip compared to a year ago. In the medium term, he expects stock prices to move higher. There is a tug of war over seasonality with December being one of the most positive months and the fact that markets are running pretty hot and are overbought. How that resolves in the short term is anyone’s call. In the long term, we are in the late stages of an economic cycle (9^th year). He is looking at any number of indicators to know when to take a defensive position. NAFTA is going to work out. He thinks it will survive with a lot of noise along the way. We are getting close to the finish line on the US tax cuts. He thinks there is some good news coming.

Gold Mining recommendation. He does not own gold miners. They perennially find ways to shoot themselves in the foot. Mining is very difficult. It is almost impossible to put a discounted cash flow on it. If you want to own it, try GLD-N or a royalty or streaming company.

Canadian Banks? It’s all about a compelling valuation. Banks generally do an ROE at about 14%-16%, and are only valued at 12X earnings. In this environment, where we are seeing a little bit of rate increases, NIM is creeping up which is good for them. Also, a lot of are in the US. He is positive on the banks. Next year should be a breakout year for them.

Economy. Things are good, and we should be grateful. However, it’s really important to be diversified. Usually when things are this good, they’re not this good for long. The best way to mitigate risk is by being diversified by asset class, geography, and making sure you own the right securities. That is probably going to be the key theme going into 2018 and beyond as we approach the end of the business cycle and start to see more credit build up, not just in the Canadian economy, but economies all over the world. Inflation interest rates are going remain anchored by several structural factors. First and foremost, there is a ton of debt floating around. When you have that much debt in the global economy, rates can only go up so much before it starts causing economic conditions to start deteriorating.