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

Market. The TSX has had a very difficult year. 2016 was a banner year, and we are giving that back this year in terms of relative underperformance. However, you can forget the impact of the currency. That was the big surprise coming out of the 2^nd quarter to now, with the Bank of Canada announcing they were not going to raise interest rates. There was a huge Short covering rally that took the loonie up to $.80. That nips into those returns. As an investor, as opposed to a trader, he suggests we just hold our positions. Had felt that at $.75, the Cdn$ was probably undervalued. As it got closer to $.80, he was looking to add more US names, particularly in those areas we don’t have in Canada. Feels the US market is overvalued and the Canadian market is undervalued, and that tends to correct over time.

Gold companies. There are 2 kinds of gold companies. Operating companies, the ones that build and operate mines, and royalty companies. He owns Goldcorp (G-T) and Agnico-Eagle (AEM-T). Agnico has been an outstanding operating company, and if you have to buy an operator, you won’t go wrong owning this. If you want an operator and get some leverage to the upside, buy when sentiment is negative, and Goldcorp is clearly the name. If you just want a safe, stable name on the price of gold, then Franco Nevada (FNV-T) is the right way to deal.

Canadian Banks share splits? Share splits are an interesting academic exercise. It typically occurs after a stock has moved, and they just want to make the shares more appealing to small investors. Feels share splits are meaningful in that suddenly more demand occurs.

Market. Investors seem to be wisely ignoring the melodrama of the Trump presidency. Clearly, the US has any number of plans for taking action against North Korea. There is one big issue for China, a huge refugee problem of 25-30 million refugees. It will also make the Japanese very nervous. One way or another the US is going to have to put a line in the sand, and it is probably not too far off. This would be a major, military mover of the market. He is normally and has been for the last 8 years, overweight the US. Probably 35% of his total portfolios is US equities, and about 20% Canadian. He is starting to take a look at the Canadian market, which is more undervalued.

High income ETFs? There are a few, basically junk bonds, such as iShares US High-Yield Bond Index (XHY-T) or BMO high-yield corporate Bond US Hedge to CAD (ZHY-T). You have to remember that they are junk bonds. They are higher yields, but don’t be too heavy in them. If he is going to have 5% on an ETF high-yield bond, he would rather have Covered Calls on Canadian banks.

How far out do you go when writing Calls on bank stocks?Normally when he does this, he is buying the stock in order to write the Calls. If he has stocks that he has held for a long time that has big capital gains, he is not going to write options, because he doesn’t want to get caught with capital gains for the sake of a couple of dollars of option premium. There is no point gaining 5% if you’re losing 25%. He tends to write stocks at the money, or as close as he can, and 6 months out. This is because it has cheaper trading costs, and his clients can understand it better if they see just one move instead of selling it out every 2 months, etc. You have to be careful when trading options to never let things expire on the expiry date. He buys them back.

A stock for a first attempt at selling a Put? He would look at one of the banks. There are a couple of things to be aware of on selling Puts. A lot of people do this, not just to get the stock at a lower price, but they use it to generate income, quite often retirement income. You can get into some pretty good problems pretty fast. Make sure you are out of this before it reaches expiry. Be careful.

Favourite Horizons ETF?There are several he likes, and it is not so much his favourite, but as to what purpose he wants to do. He likes HAP Floating Rate Bond (HFR-T) as a place to park money and it does better than the money market. Also likes HAP Enhanced Income Equity (HEX-T), a covered call on a whole bunch of things, not just financials. There is also Horizons Active Preferred Share (HPR-T).

Market. This is a bipolar market. You have the FANG stocks, but everything else is just getting crushed. He is still bullish on the US$. It had a beautiful correction of about 11%, which was a great opportunity to buy more. He would still rather be in the US market as there is more opportunity than there is in Canada. The US wants to move everything back to the US and make sure that those industries that have been profiting in the past will have their profits revert back to the US, and he thinks you will see that in both the short and long-term. Feels the lessening of regulations, the repeal of Dodd Franks, etc. will continue on, which is market positive.

Gold? What is going on now is really interesting and thinks it is going to change the view on the US$, and a lot of people’s view on oil. The Shanghai Stock exchange is testing an oil contract and a gold contract. There are 4 countries globally that are selling oil in Chinese Renminbi, and Russia is one of them. Thinks the US wants to punish Russia, because they are not selling oil in US$s anymore. Companies that do this can turn around and convert the Renminbi into gold. Feels both gold and oil are falling in recognition of this. If so, this means we are going to settle oil now in gold, as opposed to US dollars.

Market. Mid-July to mid-October tends to be weak for stock markets. Historically, right around July 19^th, markets move lower through until the middle of October. Also, volatility starts to move higher. What happens in the summer is that you get slower volume. Every year for the past 20 years there is something unusual that happens. Volatility is not there yet, which implies that the big correction he expects has yet to come. Once the VIX starts to move higher, that is when you get the real correction.

Gold. Historically, when volatility starts to increase, then gold stocks and gold goes higher. Historically, gold and gold stocks bond right around the 3^rd week in July, and then go higher right through until at least the end of September. This year, since July 19, gold and gold stocks have bottomed and have started to go higher. (See Top Picks.)

Markets. The world is nice and quiet these days. Last year we had BREXIT, The Greek Blowup and the US Election. In the next 3 or 4 months there really is nothing there. We have global synchronization. Global growth is at 3%. Earnings are popping up. We are going back to normalization of interest rates. We had emergency lending rates in North America until now. In a 10 year bond we should get to 2.5% and we are at 2%. The interest rates affects REITs greatly. He has not made returns in the last 6 months. You are worried about tenants surviving. He focuses on investment grade bonds for fixed income. It is challenging to find great value out there.

REITs and Interest Rates. Interest rates should not have any impact because they are also small, but in fact they do from a sentiment point of view. Retail is really being challenged. Landlords will have trouble renting out these spots. Office is good in most pockets except Calgary. Apartments are geographically specific. Industrial REITs are good. Amazon needs storage and logistics.

Bank or Lifeco Recommendation. He leans toward the banks for an interest rate play. TD-T and RY-T are the best in class. More than 50% of TD-T’s assets are in the US. They are cheap relative to Canada and there is room to run.