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

Market. From a long-range perspective, the market is very healthy. However, there are signs in the near term that the market is a bit overbought. Some of those signs include market breadth, the number of participating stocks, and momentum indicators are kind of diverging. This tells him that despite the trend, which looks great from the long-term, there is potential for some of the money flow to be slowing down. Some of the market leaders are starting to consolidate and are not making new highs. We might get a little more correction on the S&P 500, probably 5%, in the next few weeks, and then we should carry on in the uptrend. He is about 40% cash with that in mind.

Gold between now and March 2018? Gold has seasonality behind it right now, between July and the late fall. It is on schedule. However, from there, there is some technical resistance that will probably come into play in the high $1300. If gold can get through that, it could be very, very strong. However, that still has to happen.

Market. The FAANG stocks Facebook, Amazon, Apple, Netflix, Microsoft and Alphabet have attracted so much attention and so much money, that valuations are in the atmosphere and only one of them pays a dividend, and are all in one narrow area of the economy, i.e., Internet marketing. If you try to hitch your star to those stocks, there could be disappointment ahead. The good news is that among the rank-and-file, there are attractive valuations and some opportunities to be had. Economics 101 tells you that when prices plummet, supply dries up. As the global economy continues to rebound, demand for energy should stay firm and prices will come back in line. This is an area for those that have acrophobia at these sites. There are 3 areas of the market that look attractive right now, financials, healthcare and international. Financials got hit hard today as the 10-year treasury retreats to some of the lowest yields of the year. However, interest rates will eventually go higher as the global economy picks up.

Energy. It is a case of oil and gas waiting. Instead of being the mainstay of the market, it is going to be the thing that follows through and makes Canada great again, but it is going to take a while because things are not moving anywhere.

Gold. With the current North Korean situation, gold is an obvious way to play this. He usually doesn’t use numbers, but if we get closer and closer and closer, we could have a price of $1700. Trump knows that the only thing that will make him great in front of the American people, is to do something that they’ve been schooled in for decades, i.e. to protect the world from a nuclear tyrant.

The best marijuana stock? He can’t give any strong guidance. There is a whole model of entrepreneurs and wannabe’s, and the regulations are really confounding everybody. He was almost interested when they produced an ETF, which he bought, which is down and dirty. Expects he will continue to lose money.

Market. From a structural point of view, when the market is a Jenga Tower, the internal supports for the market are steadily weakening as the little pieces are poked out. For instance, take the phenomena of the ETF’s. An ETF is a default position and instead of buying one thing, you buy the whole darn thing. Therefore structurally, ETF’s tend to favour the most expensive stocks, which creates a momentum in the market. Stepping back from the tower altogether is a possibility, and given the extraordinary valuations of some of the leading stocks, it probably wouldn’t be a bad thing. The problem is, when is the tower going to fall? Also, are there any investments still around that actually do make some sense and may well survive the tower? His 3 picks today, which have good balance sheets, are cheap and have good upside potential. That is the best anyone can do.

Market. There are 2 major issues facing investors. The biggest one is probably Donald Trump and the fact that he is not easily controlled. We are not getting the economic agenda we thought we were going to get. It is very disappointing. He has some really good ideas in terms of banking regulations and getting rid of regulations. He’s done quite a bit of good in some other areas in getting rid of regulations, but there has been nothing in terms of tax reform that everyone was expecting. He just can’t seem to keep his mouth shut and keeps alienating the people who he has around him. Earnings in the US have been doing just fine. Unemployment is basically zero at around 4.6%. There are a lot of companies making money.

A safe affordable ETF for a student that can grow? There are quite a number. For the US, he would look at something like iShares S&P 500 (CAD Hedged) (XSP-T) and iShares S&P/TSX Capped Comp (XIC-T). He would buy one Canadian and one US, sit on them, add to them, and forget it. As a student, you are probably putting in a couple of hundred dollars a month. A very expensive way of doing it with an ETF, because there is a transaction cost every time. The best bet is to go to your local bank. They all have Canadian Index funds and a US Index fund. Insist on only those funds that say “Index”. MER’s are usually around 85 to 90 basis points, quite reasonable, and there are no transaction costs.

What high yield Bond funds would you recommend? These are paying about a 6% yield right now. Rather than getting 6% on junk bonds, he would much rather do a Covered Call on Royal Bank and get 5%. There are a number of these things, but they are all the same. An interesting one is FT Short Duration High-Yield (Cad-Hedged (FSD-T), which is short term loans, and has had a very large institutional following since it came out. It takes a whole bunch of junk bonds, but they are all short term, 6 months or so, and you get rid of duration risks. The higher yields that you were getting, are not there anymore, so he doesn’t see much point in this.

A high-income ETF? He prefers Covered Calls. Bank of Montréal has a suite of them on utilities and Canadian banks and higher dividend US. Horizon also has the HEX-T, which is a little bit broader on financials than the Bank of Montréal product. He likes them as they are all paying around 5%-6%. There is also the ZWC-T, based on the Canadian Index. This one is capital gains and dividends where you get better tax treatment. IShares has XSC-T, which is an actively managed bond portfolio, but a little more expensive in terms of management fees.

Markets. He is not exactly bullish on weed these days. He believes we are ramping up the licensed marijuana industry at an alarming rate. Supply is short. It is investor sentiment and events that are driving stocks. Domestic demand is going to be far higher than analysts predict. He thinks export demand will take off. Capital is not getting put into greenhouse expansions.

Market. One of the biggest, puzzling factors is inflation. Where is it? Economic data is clearly getting better in the US, and that is because of automation improving productivity, so wage pressures are nowhere to be seen. E-commerce has also improved the economy. Inflation is probably going to stay constrained. She is optimistic on the industrial space, although we are not going back to the 2006-2007 levels of growth. Europe and China are looking better than expected. There is a slight adjustment down for the US, but it is still growing. The most important thing on commodities is that supplies have really been rationalized over the last 2 years. She sees the whole supply/demand balance coming back into a better picture. The emerging-market index is trading at a much lower multiple than the world Index, and certainly the S&P 500. However, you have to look at the region. She continues to prefer Asia. It is a net importer of commodities. Commodity prices where they are, is still slightly better for those that use it as opposed to those who produce it. She is wary of the Middle East because their reliance on oil is extremely high. On Latin America, she is cautiously optimistic. Likes Brazil although there might be some volatility going into the next election.

An emerging markets ETF? Find the one with the lowest costs and the closest tracking error. Whether it is XEM-T, the more general broad emerging markets ETF, or XMM-T, the lower volatility one.

Market. The TSX has lagged pretty much every major developed world market year to date and is down about 1%. The MSCI ACWI (All Country World Index) is up about 15% in US$ (7% in Cdn$), so this is really in stark contrast to what is happening in the economies of Canada and most of the other developed countries. Canada has economic growth and is leading the G8 by about 3.7% annualized. Job creation has been quite robust. The TSX is trading below its 10-year average trading multiples on P/E and P/B. It offers a little more dividend yield than it has on average over the last decade. The rest of the world is trading at a premium to the 10-year average on all those metrics. The relative underperformance is attributed to worries being overblown about NAFTA getting torn up, or domestically a US style meltdown in our housing market. You have opportunity where stock prices are moving in one direction and corporate profits moving in another, which is where we are right now, so he expects the TSX to be moving higher later this year and into 2018.