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

Market.The values aren’t really here for a long-sustained market ride. He would give the market 2%-3% more to go before it runs out of gas. However, it is grinding on, so what are people doing? There is an element saying they are going to buy ETF’s. Then there are other people asking where are the really good values? Banks and financials really stand out as being the cheapest group. The auto stocks have been really ground down in the last year or so, and statistically if their earnings hold where they are, they are actually a reasonable value. He is running about 30% cash.

Marijuana. Doesn’t believe any of the current players will ever make money in the marijuana business. In Canada, we have to heat greenhouses in the winter and cool them in the summer, when compared to someone in a more temperate climate, who doesn’t have any of those costs. In Ontario, they are going to be marketed through an LCBO equivalent which is going to be a high cost structure. Doesn’t think they will be able to put the black-market out of business.

Market.Stocks keep grinding higher day by day, reaching new highs. A couple of things are causing this. We’ve had ultra low interest rates for so long, so the only place to go was the equity market. At the same time, we are getting small-cap stocks starting to move because of a hint of tax cuts in the US. Back in 2009, you could buy $1 of earnings for $6-$10, and now it is 15 to 50 times depending on the size of companies. With the market trading at about 23X earnings, that usually signals a peak. But with momentum investing, this could go on for 2 or 3 years. Investors need to be cautious. With their average purchases of $10,000 for stock, maybe they just want to do $5,000-$6,000, sit on the cash and see what happens next. It is very important for investors to understand what interest rate sensitivity does. When you look at the telecoms, utilities or even the REITs, you are starting to see their bonds equal the yields to what the stocks are right now. By buying the common equity, investors are getting bond returns with equity-like risks, which is the exact opposite of what you want to be when thinking about risk/reward. Also, investors have to realize that it is not yield, it is growth in the dividend.

Market. World markets are at near record highs. The Purchasers Managers Index shows there is synchronized growth globally, such as we have not seen during this century. It has been a tough year for Canadian investors to make money, because they have been hit by the strong Cdn$ which has been going up as well as having one of the worst performing stock markets in the developed world. If you bought the S&P 500 at the very worst possible time, the peak in 2007, you have now doubled your money.

Canadian dividend paying ETF? He doesn’t do ETF’s for dividends. Prefers buying stocks one at a time. You can’t go wrong buying good stocks. He would be looking at 1 bank, 1 utility company, and 1 REIT. He would buy BCE because of its very high dividend yield, Fortis as a Canadian utility, and probably National Bank of Canada as well as H&R REIT. This will probably outperform an ETF, but you will have to pay attention.

Canadian Economy.The strength in the Canadian economy is one of the biggest surprises for financial markets. His outlook is fairly strong. It is on pretty solid footing. Oil prices are now back over $50, which is stabilizing things in Western Canada. There is continued infrastructure spending across the country. There are a lot more hiring signs around, so employment seems to be strong. Minimum wage increases in different provinces will affect things longer-term, putting pressure on businesses and earnings, which could be a problem for the stock market and some of the retail sectors. It probably also drives a fair amount of automation through some of those lower skilled jobs, and could sow the seeds of another employment downturn 3-5 years out. In the meantime, it is a good thing because they have got strong employment so those wage pressures will be pushed upwards through the whole system and should be good for the consumer economy, but eventually there is a limit to that.

Energy.With higher oil prices there is concern that US producers will tend to open the spigot. This week, the US added rigs for the 1^st time in about 8 weeks, and prices became a bit soft. However, he is looking positively at the Brent price, which has moved up over $55 in backwardation, which typically means the stock market is getting tighter. Also, there are increased US exports, which is really needed to clear the inventory balance in the US, moving barrels from West to East. As long as the demand picture remains solid, he doesn’t think US shale can really do that much more at $50-$55, but if it gets much more above that, there could be some additional production come on.

Market. Market expectations on tax reform were for nothing getting done. Now it looks like they will put all their weight in getting a tax package done. Whatever they get done should be disappointing and we should get a sell-the-news reaction. Over the last three months earnings revisions have gone down on the S&P. Canadian tax changes will mean nothing to markets initially but over the long term it may discourage the Canadian entrepreneur. The government of Spain may fall as a region tries to separate but markets are not reacting.

CAD$. On the rate hike front, the BOC is more likely to match the US Fed. He would not look for an October move -- December maybe. In the next 6 months the CAD$ will go from 79 to 83 cents. Below 80 cents he wants to be hedged. He is fully hedged today.

Bitcoin. Governments don’t control it. He believes we are moving to electronic-only currencies globally. He does not think governments will allow alternative currencies with unlimited amounts in circulation. Electronic currency gets rid of the gray economy. GBTC-N is a speculative instrument.

He has been cautious for a year and a half. There are defensive things you can do. He runs portfolios with half the risk of the general market using covered call strategies, for example. Make sure you are globally diversified. Don’t sit in cash and wait for a pullback. It may be 2019 before we get a pullback.

Educational Segment. (weekly series) What Investor Personality Are You?: 4. The Independent. A lot of behavioral learning has been incorporated into the body of knowledge. The independent is a BNN watcher, reads the paper and is interested in being involved in the investing. These investors are susceptible to a self attribution bias – they take credit if it works and blame the other guy if it doesn’t. It causes portfolios to be concentrated. They should focus on diversification.

Market. We are into 10 dangerous days. This is a time when companies give negative guidance and analysts reduce earnings estimates. We had hurricanes and earthquakes this year. After that things look better. We are about to enter the period of seasonal strength for US and Canadian markets. It takes until the middle of October for the strength to start. It should happen again this year. The first quarter of next year should be even better.

Oil. We are starting to move into the trend already, over the last couple of days. The period of seasonal weakness is coming into oil. Stay away from it for now as well as energy stocks. Late January we should go into another period of seasonal strength until May.

What is the most seasonally predictable? The base metals sector is quite reliable. Stocks are more predictable than ETFs. Commodity prices are more reliably seasonal than stocks.