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

Market. There will be opportunities to deploy cash at lower values. There is complacency and at an inflection point in the way central banks are going with interest rates. After this 8 to 9 year experiment of near zero interest rates he is watching how bond and equity markets react. Things are priced to perfection. You have to look hard to find opportunities. There is also the option of waiting for things to pull back in general. A pull back in markets would give people an opportunity to get in with cash on the sidelines. We are in the 8^th or 9^th inning in the bull market.

Market.The market cares about earnings, not government policy. The numbers have been consistently good, whether they are earnings or economic numbers. Factory orders were incredibly good. Also, the housing market is starting to pick up. Earnings are good because the world economy is in unison. All the major economies are presently charging forward. There are still cheap stocks out there to buy.

Hold a stock until the X dividend date, Sell and move into another stock, and do the same thing again?This has been done by some institutional investors, but it is tough to make it work. Once a stock goes X-dividend, it knocks the stock price down by the amount of the dividend, so you really didn’t get anywhere. Not a strategy he would pursue.

Canadian Market. He can see upside, but expects it will be a grind higher over the next 6 months. There will be periods of volatility, primarily driven by geopolitical types of events such as NAFTA and North Korea. On the pullbacks, they should be treated as opportunities to look at buying select stocks in specific sectors. Favours economically sensitive stocks. The recent GDP numbers indicate we are starting to see growth, which will continue to be revised both in Canada and the US. He is going into more cyclical types of stocks that can maybe benefit from the increased pickup in GDP in infrastructure spending. We are getting to the later stages of what has been a pretty good overall rally, and as such, generally in the later stages, we will see some cyclical outperformance, and that is where he is trying to place clients’ money. Moving some money out of the US and into Europe, where he is seeing some opportunities. He’ll do this through ETF’s and other types of instruments.

Inflation and Raising Interest Rates. The Bank of Canada has been talking about recovery and strength but we haven’t seen any real inflation yet. Unless they can maintain the momentum of the current recovery he doesn’t believe they will be in too much of a hurry to raise interest rates.

Impact of Interest Rates on the Financial Sector. There is already a little bit of expectation built on the price of interest-sensitive stocks. He is not too worried. A lot of those stocks have fairly good yields, and if we don’t see interest rates rise on the fixed income side, people are going to stay on the equity side. Also we’ve seen the banks investing a lot into IT lately, so don't be surprised to see some cost cutting coming down the road on that side. We could see some efficiency gains and cost-cutting that would offset the lack of growth on net interest margins.

Consumer Staples or Discretionary? He prefers staples, we’re seeing some sign of distress in the discretionary sector, particularly, retail is struggling right now not knowing what impacts the technological changes happening in the sector are going to have. You’re less vulnerable with consumer staples, although they have their own problems, notably, wage increases coming in in Ontario and other provinces.

Market. From a PE multiple the stock market is at its highest since we have seen since from the last 5, 10, 15, and even 20-year periods. Relative to where interest rates are, where inflation is, where bond yields are, where else are you going to go? We are definitely in a healthier situation than in 2006 from the banks standpoint, and we don’t have a housing bubble, so the underlying macro environment looks pretty good. Historically, relative to interest rates and inflation, stock still look to be attractive.

How to be positioned if US tax reform goes through or not? The chatter is getting louder. Maybe they don’t pass the entire reform they want, but there are some easy things they can do. It is no secret that between technology and health care, there are trillions of dollars in cash sitting offshore, that if repatriated to the US would get hit with a 35% corporate tax rate. If there is some reform, that is low hanging fruit where cash can be returned to shareholders in the US in a very easy way. That would help tech and healthcare. The other big issue is, what is going to be the corporate tax rate. Coming into the year, stocks rallied hard on the prospects of a lower corporate tax rate. Some investors and analysts are baking in a 15% corporate tax rate, while others said 20%-25%. Doesn’t think there is going to be a massive market selloff if it doesn’t happen. Either way, you should have a diversified portfolio with some bonds in your portfolio. If there is some unforeseen event, you need that to protect your downside.

Bitcoin?A very interesting speculation, that he won’t touch with a barge pole. Thinks a lot of speculative interest that was in gold, has caused the interest to pour into Bitcoin. Gold is the only currency that is no one else’s obligation. If looking for insurance against disaster, holding some gold bullion makes sense. He is not doing it presently because so much of it is priced in.

Market. He expects a big week in earnings. FNG-N has all the FANG stocks that are reporting this week. You had a pretty big run up and then some weakness. His gut feel is that we should get a bit of a sell-the-news action. He likes the idea of diversification and this is a very niche ETF. He feels the FED will continue to step on the breaks and try to raise interest rates. The ECB is doing the same thing. It will be a challenge over the next year. It is the beginning of the unwind for them. He does not have a strong feeling to sell Europe at present, though.

The long term implication of an inverted yield curve. Prior to every recession we ever had we saw an inverted yield curve. It forecasts a recession well out from the present. We should get a bounce short term in the curve but longer term we should get an inversion.

Sleep at night portfolios (mutual finds Larry manages for BMO). Some combination of the three will fit most people’s portfolios. The global dividend fund is suitable for most people. The global balanced fund is currently yielding about 4%. All three manage risk when it comes up.

Educational Segment. Seasonality. The seasonal pattern has not worked this year (Sell in May and Go Away). There was no market correction in Sept./Oct. Since we did not get a correction you might say we will not get much of a seasonal impact for the rest of the year. He looked into history and over 30 years in years where we did not get that seasonal correction, the market just continued up and the seasonality in November December is even stronger, although sometimes the correction is just later in the year. Seasonality is just one factor to incorporate into your investing decisions.

Market. It is interesting times we are in. Investors may be missing the big news out of Asia. The media is focused on Washington. There have been important things longer term out of Asia. The PM in Japan was reelected and is now the longest serving PM in decades. He will get their economy back on its feet. The Chinese communist parties had their semi decade get together and laid out their next 50 years’ plans. It affects people worldwide. They are growing at 6.8% when everyone said they were done two years ago. It is important to look at what is going on in the number 2 economy in the world. China needs to cut commodity production due to pollution generation.