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

The expectation for increases in interest rates has caused a pull back in interest sensitive stocks. He thinks rates won’t go up much and it will be low for longer.

Markets. The expectation is for less than double digit earnings in the quarter, He is going to be looking for whether they will be making the year or not. The markets are very much about rotation and they are stable as a whole. He is a bit nervous, but things seem to be holding in. Everywhere except Japan wants to ease on stimulus. He is expecting economic growth to slow and interest rates to rise slightly.

Education segment. The Role of Gold in your Portfolio. Gold has been selling off quite a bit. The best opportunities are when gold is going down. It is a great diversifier, but it yields nothing so it is hard to hold it in your portfolio. If you look at the correlation between gold and other asset classes, some have no relation and some are very correlated. Gold has high correlation with currencies. The total world index has very low correlation to gold. VT-N compared to GLD-N have various correlations through time. TLT-N is more correlated to GLD-N so it represents less diversification. He is looking at buying gold here. If gold breaks below $1200 we will see some panic selling and that is the time to look at accumulating.

Market. He is scaling back risks ahead of the central banks hiking interest rates. 9 out of the last 11 recessions have come off the backs of Central banks raising rates. He has some concerns regarding the yield curve. It would only take about 3 US raises for them to get an inverted yield curve. An inverted yield curve is a pretty strong signal that a recession is fairly imminent. Given that we are fairly long in the tooth in this expansion out of the 2008 recession, it is probably prudent to take some risk off the table at this time. Some of the leading indicators are rolling over a little. Feels the central banks are a little behind the curve. US GDP figures, and to a lesser extent in Canada, as well as inflation figures in both countries, are now flashing warning signs that they should be raising rates.

A US defence stock? You might prefer looking at a Canadian company CAE (CAE-T) which makes simulators for training of pilots. You could also look at General Dynamics (GD-N) or Northrop Grumman (NOC-N). Most governments are really strapped in terms of cash, so it might be an area you would take money away from. There is political risk in buying defence stocks.

US Economy. Earnings started off on an extremely good footing and GDP came in a little bit weak. There was a big 15% EPS growth, and the job numbers are cruising along, 200 plus or minus. Going back 5 years, it has actually average out to 207. Putting up 220-230 is right in the ballpark. The Fed is just looking for a clear path forward. They know they need to normalize rates, they know they need to normalize the balance sheet, they just need the path to be clear for that, and are not going to be aggressive in an interest rate hike. They have a great path for an interest rate hike in that corporate earnings are strong; triple B credit spreads have been fantastic at 3 year lows. That means that in the last 3 years, investors and bond market participants feels that there is the least risk in buying a triple B bond at this point in the last 3 years. You want to see that being low and trending lower. When it reverses and shoots up, that is when the red flag goes up. Typically, you see this in the bond market before equities peak. The fact that we are seeing bond spreads being quite low is a good sign.

Market. We’ve had a good strong bull market run for a number of years with great returns. Everyone is looking at valuations, now feeling it is toppy. However, you have to take it in context. If you go back to 1982, and look at the average mid-cycle PE, it is 18.6. Right now, on a full year 2017 estimate, we are at 18.5. He doesn’t think the market is overdone. You just have to pick your spots and allocate properly.

A US defence stock? He likes aerospace and defence. General Dynamics (GD-N) has been fantastic. It has had a little bit of a pullback in terms of its earnings estimates, but ultimately the stock has produced some great numbers. They also have a “buy back” in place. He also likes Raytheon (RTN-N). It is not particularly over exposed to any one of the US defence programs, and is the one that he would probably tilt towards.

Market. We are starting to see a bit of roll out. Tech stocks particularly, have had some really strict valuations, and some of the money is being taken out of that sector. There is also a global rate cycle that is going to be moving forward and capital being put to work in that market. There is a sector rotation, and techs are just going to take a pause to see if the earnings are going to come through. For cost conscious investors, this is probably the time to buy. Summer is the better time to buy.

Effect of Trump lowering taxes on US companies situated overseas? A good example of a company in that context would be Waters Corp (WAT-N). A biotech company that has a ton of cash offshore. They didn’t want to bring capital back to the US because of higher taxes, so instead they have been buying back tons and tons of shares. A very inefficient way to run a company. If Trump can get capital back into the US, the companies will spend the capital and in many cases give US healthcare/US tech a buying advantage relative to European competition. It will also allow them to do acquisitions. On the other hand, he is not entirely sure that Trump can manage to do it.

Markets. He was bearish last time about Cannabis. These stocks have been going down 11 weeks in a row. Cannabis will continue to be a business unto itself. He is looking for a bottom on the stocks. See his Top Picks. He likes the infrastructure associated with the business. Some jurisdictions may not allow you to walk down the street smoking up. It Is up to the local municipality as to what they will allow in terms of smoking. 5 or 10 years from now distribution will be key. We have a free market approach to the supply but when we go to sell the stuff, we are going to say where, how much and what the price is. He does not know how this will kick back on us. He does not think mail order will work.

Pharma is facing one of the biggest homeopathic medicines in the world. But they will not buy out a Cannabis company unless they can patent something that is much better. You should wait and see if this business is profitable.

Market. The market has done very, very well. In most cases, it has doubled since the bottom of 2009. There is a sense that a short-term pause or correction at this time might be healthy. It would give you a chance to reload on some value stocks. The global economic growth is picking up speed, so the backdrop is good for the economy, and therefore good for earnings growth. The US Federal Reserve has started to raise interest rates, and so far it hasn’t had any negative impact, but at some point it might cause a bit of tightening. At this stage, your cash allocation should be closer to your maximum because of the uncertainty with high interest rates and delays in some of the reforms that might be coming. Hold onto your core holdings, but maybe take profits selectively and get ready to buy on a downturn.

Market. Global conditions are very favourable for stocks for the next 18 months. Conditions are good because corporate profits are strong. Earnings, especially out of the US, have been good and we should start getting more performance out of Europe and emerging market countries. The emphasis in the US may shift to the Fed selling off their bond portfolio a little faster than had been expected, which would be a good thing for banks, as it would get away from the flat yield curve with the 10 year rates moving up a little faster. He would be underweight Canada as it is just flat and is less interesting than the US or the international markets.

Canadian Bank ETF with a good dividend? All the banks pay good dividends. In Canada there are 2 specialty ETF’s for banks iUnits S&P Financial (XFN-T) and BMO has an equal weighted banks for Canada ETF. He is not really expecting much more out of the Canadian banks. He sees earnings growth slowing in Canada, which means dividend growth will slow. not sure a Canadian bank ETF is going to be worthwhile.