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

Long term investment. There are many discount platforms. You want to be globally diversified. International equities, fixed income, etc. There are very good ETFs that offer this. There are 26 providers in Canada and sometimes offer compelling strategies. For a long term, you might find that currencies do not offer any variance. You should get professional advice.

Canadian ETFs that provide tax delayed returns. He is not a tax expert. He can recommend where to look. There are swap based ETFs that track indices, pay no dividends, and the derivatives track the total return index. You end up with a capital gain only. There could be a swap fee in additional to the MER. You may get more after tax return on these.

Europe. He is feeling good about Europe. There are risk factors that may have been factored in. Europe is a great place to invest. With broader emerging markets you may want to be careful how much exposure you have.

He welcomes our new robot overload. Robo advisers will assess risk tolerance then put you into various asset classes. He likes this concept because robots never get tired, emotional, etc. They don’t make human errors. Many errors made in the investing world are human errors. This offers a high level of discipline.

Markets. The move from tech stocks into financials started last night. There was some good data coming out of the financial sector. A lot of buybacks and dividend increases from the larger banks. There had been a slowdown in the Tech space, which was really becoming a crowded space. Financials and technology are his biggest weightings. Long-term, technology will be fine, but in the interim, given that it is the end of the quarter, money is moving out of tech and into some of the more value names. If you have a weighting in technology of over 25% or 30%, then you probably want to pare back a little. However, if you have very little weighting there, then you can start to nibble at some of the tech names. There could be more of a pause as we begin to rotate into financials, or even the energy or telco space. International markets are looking very nice from a relative valuation level.

Market. Had been constructive on the “value” trade all through this pullback, but it has carried on so long, growth stocks are really moving higher. Maybe the value trade isn’t coming back as quickly as he would’ve liked. Economic growth is not going to be there. Growth stocks tend to market late cycle “end of market” behaviour. There was a similar run up in growth stocks in 2015 (healthcare and FANG stocks), and 2016 was a particularly dangerous time for those types of stocks. People overpay for growth. Canada can’t seem to get out of its own way, and we keep having mini crisis, such as theoretical housing crisis, theoretical Short positions by speculators and weak energy stocks. All these things are weighing on Canada, but if you take a step back, it really is the “value” trade.

Market. The TSX bottomed in January 2016, and has gone up fairly significantly. However, it is starting to break down in April and May. We are bumping up against the 50 and 20 day moving averages. The chart indicates a descending triangle and we could see potential downside all the way down to about 1450. We are entering the summer, which is known for volume tapering off, which causes volatility. Over the next few weeks we are into the typical Summer rally period, so from about today, all the way through to July 17 the S&P 500 goes up on average, but only 1.11%. Beyond that, you enter into the most volatile time of the year for stocks. From mid July through to October, the VIX tends to rise from the base it has carved out in the 1^st half of the year through to the height of the summer season.

Market. It has been a really tough year for the Canadian marketplace. Looking back to 2016, things were going right. Commodities were firmer coming off that terrible 2015, and the bank stocks were moving. In 2017, bank stocks are not moving and energy is down, down and down. The market is treating commodity stocks like there is a recession, but there is no risk on the horizon. That is a great dichotomy that will come unwound as the year unfolds. US technology stocks have been the darlings. The big cap names have seen all the money flowing. The bond market keeps going as if there is going to be a recession. There is a decline in long bond yields, which is a bit of a shock. He wants to protect his clients’ capital and the best way to do that is by being careful of high growth names, those trading at very, very high multiples, and look for value in downtrodden areas. When the market comes back, it will be good for the Canadian market, and Canadian resource stocks in particular.

Gold. Gold shares haven’t done much. We’ve been seeing higher lows and higher highs, so we may be in a bit of an up channel. The trend is positive. He would recommend you have some gold in your portfolio. Has 5% of client’s portfolios in gold stocks. As the US$ continues to weaken with euro strength, gold could go up with an upward bias. It would be great to see it break $1300.

Cdn$? A lower Cdn$ historically has been good for Canada, particularly in manufacturing and resources. It makes energy producers and mining companies that much more profitable, because they sell products in the US$. It used to be much more beneficial when we had a manufacturing economy, but we no longer have the manufacturing strength that we used to, and that is going to be a headwind going forward.

Market. We have a roaring economy, but a mismatch on the TSX. The bigger surprise is the roaring Canadian economy doing almost twice the rate that the US is on GDP growth. The Canadian market seems to be dogged by some combination of oil, NAFTA and housing fears. There is not too much fundamental basis for any of them, which creates opportunities. The bearish headlines have pretty much played out. We’ve gone down from the $55 level to the low $40s. It seems to be pretty good support here. Longs to Shorts reached a capitulation type level, the same level as they reached in February and August 2016, and there were pretty good rallies off of those levels. He is still somewhat concerned about the prospect for inflation with the economy at full employment and potential stimulus.

Cdn$? With the Bank of Canada speaking hawkishly for the 1^st time in quite some time, people didn’t really have that in their forecast. Thinks oil prices are at the low end of their trading range and should start to drift back up. If the Bank of Canada starts to normalize interest rates in combination with the Fed, that could provide some upside to the Cdn$. He wouldn’t go wild on this, because he doesn’t think it is going above $.80.

Banks or lifecos? He likes the banks for the long-term. If you look at the long-term total returns on the banks, they are 2%-3% higher annualized. Both have done well. Also, there is more volatility in the lifecos. He likes the banks at their current levels.

Markets. An Italian bank is purchasing for one Euro two Italian regional lenders that were being bailed out, and are now being wound up. This is the continuation of ‘too big to fail’. The government is not doing a good enough job of regulating the banks there. This is going to be troubling for decades to come. If interest rates go up marginally, you see purchasing coming down. At the end of the day, fixed income is a safe place to put your money. There are doubts that Trump can ever cut corporate tax rates all the way to 15%. This will affect small cap US stocks, which would have benefited tremendously from a big tax cut. That makes the Russell 2000 index the most expensive in the world, so he is short that index.

Educational Segment. Robots. A lot of boring jobs were replaced by computers and so a lot of jobs have gone away. Amazon is breaking every space. They could have cost a million jobs by now. They are only going to get bigger and bigger in this space. He feels there will be social problems coming. From the mid-70s to today, the bottom 50% of people have seen no real growth in their incomes. The next 40% have seen only a marginal growth. The top 10% are all doing well. BOTZ-Q and ROBO-Q are ETFs for robots and they have outperformed the world. He will love them once we get a market correction.