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

Market. Tech stocks are showing some weakness, and it is probably a decent opportunity to buy some. Some would say it is a crowded trade, but the reality is that we have a very slow growth world. The US just came out with their economic growth, and the 2^nd quarter was 2.6%, well away from the 4% that Trump was promising. In a very slow growth world, companies that can post 30%-40%, and some cases more, are going to be prized. The FANG stocks are really unique monopoly companies. For most of them, their growth rate and the run rate is pretty unlimited at this point.

Market. In general, you are going to see more volatility in the small and mid-cap space, but this earning’s season has been a pretty strong one and there has been a lot of movement. Those smaller companies are nice because, since they are growing from a smaller base, they don’t necessarily need as large a contract to get a boost to the bottom line. He believes in diversification, but if he were going to choose sectors he would want to be light on it would be the energy and materials. Those are sectors where companies have no control over the price.

Market. Central Banks are in no hurry to see interest rates climbing. They are going to remain data dependent. Large central banks tend to target inflation. Canada was one of the first Central Banks to use monetary policy to target inflation. What they are really trying to do is create price stability and sustained economic growth, not choke it off. Despite the fact that they may want to increase and normalize rates, the reality is that if they do it too quickly, economic growth probably slows down very significantly. He thinks they are going to remain data dependent, which broadly supports maintaining overweight exposure in equities, and even maintaining some fixed income exposure, because one of the absurd things that has happened this year is that volatility is a very low. You are going to need that fixed income exposure in the event that volatility increases.

Should Canadians be investing in Canada? For any Canadian investor that is looking at the TSX as their benchmark, there are obviously flaws with it and it is heavily exposed financials, materials and energy. Having a little bit of diversification outside of Canada gives an opportunity to complement your Canadian exposure with sectors like healthcare and technology. Use the stronger Cdn$ to increase your US exposure, and it will be great from a diversification standpoint.

Junior energy service companies? His view is that oil prices are going to remain relatively range bound. If you are going to buy some junior energy service companies, you are better off buying a basket of them and probably maintaining a relatively low concentration within your overall portfolio.

Energy. He is invested in energy infrastructure companies versus producers, because he thinks commodity prices are going to remain range bound. Also, thinks you are going to see a bit of an increase in oil and gas production in North America. All of a sudden US shale producers have become the swing producers. If you are invested in energy infrastructure, you should generate very substantial dividends and very good free cash flow.

Market. Fully believes in the US market at the moment, with these highly profitable, high growing Internet companies. The shift in the economy occurs occasionally, and we are in the middle of one. There is $200 billion in advertising still to move from TV to the Internet. Google (GOOGL-Q) and Facebook (FB-Q) are going to get 99% of that. His portfolio right now has about 70% US, 10% largely Britain, but with some Germany and 20% Canadian.

Cdn$ outlook for the next 3 months? Our trade is tied to oil, and the outlook for oil is weak to flat, at best. The Cdn$ has been in a big roll, recovering from $.72 at the bottom of the mortgage crisis. Expects that is because of Short covering from US investors. Thinks the Cdn$ is heading back to the mid-$.70.

Market. We are in a kind of Goldilocks environment in that there is slow economic growth. The one problem is that central banks are inclined to be raising rates. It has been a while since we have had a correction, and that could be the catalyst for our first 5% correction for some time. The US and Chinese economies are growing probably as strong as they have for a year or 2. That gives central banks the ability to start to slowly taper back to a tighter monetary policy. There are certain areas of the market that are being left behind because of the craze over ETF’s that are flooding their market into a smaller and smaller cadre of really big large cap companies that are leading the market. There is a lot of stuff getting left behind, and there is a lot of value there. It shows up in terms of takeover activity.

Markets. The earnings season has been pretty impressive so far. To the degree there is financial engineering and the pricing off of proforma earnings, he is concerned. The true value investors do not see a lot of value here. This is a momentum and growth market. He thinks valuations are high and we are at a risk of correction, as he has been saying for half a year now. He is impressed with what corporations are doing here, however. We saw the Fed talk about unwinding QE. The bank of Japan is talking about not being as simulative and well as the bank of England. We have seen a dramatic 10% move in the Canadian dollar.

Inverse Market ETFs. It depends on your overall portfolio and risk tolerance. Since November the markets have gone straight up. HIU-T is an example. He is still net short the US market, but it is hard to make money. You can make money hedging the currency, however. It is always important to diversify even if that one thing is not working today. At some point we will get a little bit of a dip. Seasonality-wise this is not the time to cover shorts. It will happen sometime through October. You might write a call on top of the ETF to enhance returns over time. He has no fundamental objection to single inverse ETFs, but he does to the leveraged ones. The singles do not eat way into the NAV.

Gold should always be a part of everyone’s portfolios. It does not produce any income, but some ETFs give you some income. At this level he likes gold, but does not love it. The high might be $1350 in 6 months. 5% is a good holding right now in your portfolio.

Educational Segment. How to Play the Canadian Dollar in Coming Months. People are paying more and more attention to currencies. In early 2015 Canada surprised us by lowering interest rates. Now they have raised them. It has had a meaningful impact on the Canadian dollar. There are three factors for currency decisions: (a) Oil prices (inverse); (b) Interest rate differential between CAD and US 2 year rate; (c) Net speculative positions in the Canadian dollar. Oil could potentially move us up if it went up, but there are only a couple of months of potential increases left in this year. We have probably seen the high end of the Canadian dollar last week. It should settle into $.77. He is playing it as a being in a new trading range.

Markets. We went through a terrible bear market in the resources. We are getting a recovery from an oversold condition. This is the start of a bull market. Either the commodity price rises or the commodity becomes unavailable to the society and that portents higher commodity prices. You need to both invest and speculate in a portfolio. Being in the biggest and best early in the cycle is a necessity. The better pop is in the juniors, however. It has been a dry run for the juniors and this will benefit them now. There are 3000 junior resource stocks in the world and 2500 are valueless. The determinate between them is the people. There are those that are serially successful.

Cobalt. He is attractive to it. If you were to increase the supply you could also increase the price. It is constrained by availability. It is an extraordinary place to be for the next 5 years. Cobalt that can be produced in large quantity is limited to marginal deposits in The Congo and Russia except in Canada. But Cobalt is only found with other resources in Canada.