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

Oil? Crude oil has a period of seasonal strength from late January right through until May of each year, and does extend into September, but from September through until January it tends to move lower. The time to play crude oil is in the spring. Technically, it is getting close to a longer-term support level, but is still in a downward trend.

What sector should I be in now, and what is the next sector we are rotating into? Gold and gold equities still look very good. There are also gassy stocks (see Top Picks). A sector that is starting to show some promise after a big move on the downside, is agriculture. These are very short seasonal trades. The big moves for seasonality comes around the middle of October, when sectors that are economically sensitive really start to click in.

Market. We have rising interest rates. Economic numbers have been outstanding, certainly better than he ever thought they would be. A little dubious they are going to continue, but in the light of 4.5% growth, which we haven’t seen for a decade, he is not surprised that the Bank decided to raise interest rates. We are back to 1%. The economy going forward has seemed to force the Bank of Canada’s hand. This hasn’t had an effect on the TSX. People seem to be worried about all sorts of other things such as hydrogen bombs, NAFTA, and perhaps what is going to happen with hurricanes. When people are on edge, they tend to go to cash, gold, or just away from markets entirely. From a technical standpoint, 15,000 on the TSX seems to be a resistance level. At that level, if you are interested in buying banks, that is not a bad level.

Marijuana stocks? Has not bought any. We are very early on in a brand-new area, and there are a whole bunch of those stocks out there that are not going to be there 6-9 months from now. There are a lot of risks. Even the ETF has had a 20% decline. We just have to wait and let this whole business settle out.

Cdn$ versus the US$? Before going into the US$, he would wait a little, but sometime relatively soon, as soon as it becomes clear that the federal reserve raises rates again, he thinks the US$ will strengthen up. When the Cdn$ gets to $.83 and looks a little toppy, that would be the time to buy the US$.

An ETF to play the banks? He doesn’t tend to invest in ETF’s for banks. Prefers Toronto Dominion (TD-T), Bank of Nova Scotia (BNS-T) and Bank of Montréal (BMO-T). Bank of Montréal has been a bit of a disappointment, and he may trade it off. If you want an ETF, BMO has a couple, the Equal Weight Bank (ZEB-T), and the Covered Call (ZWB-T). The covered call has been fairly reasonable. The yield on the latter is actually better than what you are going to get just on dividends. However, if the banks decide to take off, that part of your equation doesn’t work out, in fact you probably underperform.

Markets. We are coming off two emergency cuts in interest rates. The Canadian dollar keeps getting stronger and it acts as a headwind to the economy. The CAD$ has appreciated about 11% from its lows. There are oil companies selling out of the oil sands. Some Canadian companies have the ability to grow their dividends, so not all dividend companies are created equal. If you can grow higher than the rate of inflation then you have a good Dividend. Canadian banks had a good run from their lows. It may attract global investors. Toronto and Vancouver housing markets are markets unto themselves. No other country has ever engineered a soft landing. Job creation is about small businesses. Our unemployment rate is higher than the US.

Market. The market has done so well in real estate, bonds and stocks with interest rates trading at record low levels that it begs the question that if interest rates rise, it doesn’t sound like it isn’t going to be good for a lot of things. Investors need to take a hard look at some of the things that have done well, like pipeline and utilities. Those sectors are not going to perform well if rates keep going up. Things like REITs are probably going to suffer some pain. The Fed governors expect the short-term rate will be 3% in 3 years time. That is a big jump from today. If that happens, that suggests that 5-10 year bond yields will be somewhere between 4% and 5%, which means mortgage rates take a big jump. It is going to impact corporate capital allocation in terms of share buybacks and the like.

Market. Doesn’t believe this is a cheap stock market currently. He is holding cash and is very defensive. There is a lot of political noise, and is not something he spends an enormous amount of time on.

Auto parts maker with the best dividend? There are a number of suppliers in the 2%-3% dividend range, but this is a dangerous strategy. He would not seek out auto part suppliers based upon dividend yield. These are very cyclical, capital intensive businesses, and expecting them to provide a stable source of income without considering other factors, could be a little dangerous.

Royal Bank (RY-T), Toronto Dominion (TD-T) and Bank of Nova Scotia (BNS-T) have been dropping. Why? Higher interest rates do help the banks, but on the flipside you have to be mindful of the people who are paying the interest payments. He doesn’t own any Canadian banks. With the risk/reward, there are better places to put money in Canada. Canadians have taken on too much debt. Believes the dividends are safe.

US banks? Prior to the election, these were his largest holdings. They have enormous amounts of value given where they were trading. Post the election, interest rates moved higher and they became a very consensus Long and the shares revalued substantially. He sold the vast majority of his holdings. They’ve been pulling back and are getting more interesting today.

An index fund that represents the S&P 500 in Cdn or US dollars? You can buy these in various forms, and there are all types of passive products you can buy, that mimic the index. He is an active management firm, so this is not what he does. He would rather own the companies that he believes in rather than an index.

Telecom stocks? A typical reason to own these stocks are the dividends, and he doesn’t own any. Has nothing against the model, it is really just a function of valuation. He views all these companies as just free cash flow machines. Hasn’t got comfortable with the valuations. They are well-run.

Cdn$. Canadian investors who own US stocks have had a double-digit rally since May on the loonie, so you basically had to make 10% on your US stocks to break even. Technically, the Cdn$ could get as high as $0.84. The next level of resistance is somewhere near $0.84. Now that we have broken through $0.80-$0.81, we are probably going to hit somewhere around the $0.83-$0.84 level.