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

Educational Segment. Chart shown of Market Capitalization of the MSCI world metals and mining index vs. capitalization of GOOGL. GOOGL is now worth more than the base metals sector of the entire world. The metals and mining index has been coming down with a lot of it being the Chinese growth story tailing off. Chinese growth is 100% fueled by Chinese debt. China is the real catalyst for the next global downturn. He has been watching Dim Sum Bonds. It is the worst performing bond index in the world.

Market. The market was already poised to head higher before Trump was elected. The trends were already in place. What is interesting is that the Trump bump everyone was looking for i.e. get Long banks and get Short bonds, etc. had a really nice run up until the middle part of the new year, and has subsequently given everything back. People are now very much in a “wait and see” hold pattern with respect to the whole reflation trade. Several sectors are really propelling the S&P 500 narrow rally, the consumer discretionary and technology. The backdrop for technology is really conducive. We are in a period right now where you have inflation falling, real GDP growth accelerating, and that backdrop is about as good as you can get for the technology sector. Inflation is still benign. Technology has now moved up to about 25% of the S&P, which is really, really substantial. People should be rebalancing portfolios now. At some point there is going to be a real reversion trade. He has Short positions now on the broad indexes of Canada and Australia.

US banks versus Canadian and European banks? US banks in general are cheaper, comparing some of the money centred banks like Wells Fargo (WFC-N) and Citi (C-N). On the general outlook, there are some real positive tailwinds, whereas in Canada there are a few headwinds. Also, he would be playing more of the bigger cap money centred type banks, as opposed to regionals. The European side does look good, and there is an ETF iShares MSCI Europe Financial (EUFN-Q) which is a broad composite of European banks. These are banks that have not moved that much. There is a big opportunity in European banks. He would choose banks in the order of 1) European, 2) US and 3) Canada.

EUR/USD *Short*. The euro today is around 1.1257, and has had a really strong move up from 1.05 earlier in the year. This is predicated on the fact that people think Draghi is going to curtail corporate bond buying. Thinks that is going to change. Real economic growth in the US is accelerating, and in Europe he thinks it is topping out. Another wildcard is the Italian election which is coming up, which will cause some consternation in the market.

Market. We are in the middle stages of a secular bull market in the US$. There is a big, big rally coming. Trump pulling out of the climate accord seals the Pax Americana. It shows that America is going to turn inward and is going to focus on itself in getting jobs. This tells him that the run is still strong for the US$ against the back of the world currency.

Market. Technically, the major US equity indices break to new all-time highs, and that generally creates more buying pressure. However, this is a short-term phenomenon. Historically, around the middle of June to the middle of October, there is a correction that happens. On average, the TSE composite reaches a seasonal high around June 9. There are 2 highs for the US market, around June 15 and July 15. From the middle of June to the middle of October, during the last 20 periods, there have been 20 corrections every 3 years, and the average decline during the correction is 14.9% for the S&P 500. That implies that sometimes, from the middle of June right through until the middle of October, you may want to be cautious in the equity markets. Watch the volatility coming up next week. To get a spike in volatility, that is the start of a correction.

Healthcare? The healthcare sector has a lot of things going for it right now. There is currently a big conference in Chicago with lots of news coming out about new products, particularly in the cancer area. Seasonally, healthcare does very well through until about the middle of July. However, look for healthcare providers, such as hospitals stocks, as they are outperforming the healthcare sector. Also, check for healthcare implement providers which are also outperforming the healthcare sector.

[The show was truncated by live coverage of announcemnets by governments regarding softwood lumber].

Lumber. They subsidize BBD.B-T so why not lumber. This is going to play into the border adjustment taxes. Lumber companies log on publically owned lands. Canada is not negotiating on a position of strength on this issue.

Market. Looking at the landscape over the last year with all the election and all the noise, if you were to go back to say you were going to get 3% GDP growth in Canada and the US and keep interest rates low at 1.5%-2%, with labour being fluid but still tight, you are going to have higher equity valuations. Everyone is concerned with volatility, but in the last 3-4 months, there has been no volatility. Valuations are still not incredibly extreme.

Equities or bonds for income? Don’t confuse the stock market with the bond market. It depends on what kind of risks you are willing to take. You have to assume that you can handle a 10%-20% drop in the stock market. Money markets don’t give you that, but also, they don’t give you any yield. The closest thing would be corporate or high-yield bonds. He wouldn’t recommend high-yield bonds because spreads have compressed so much. The next would be investment grade bonds, but at a retail level, it is very hard to buy them. Following that, he would recommend looking at a bond ETF, such as XCB.

Buy REITs on pullbacks? Even though we had much stronger GDP today, some of that was due to inventory gains. The Gov. of the Bank of Canada was pretty clear in that he doesn’t want to raise rates, even if there is a rate increase in the US. Some of the higher-quality REITs he would definitely buy on dips.

Emerging Markets. Overall, the emerging markets are trading at a much lower valuation than the US, but you need to know where you want to be, what sector and what countries. She is very overweight India which is undergoing a multiyear, and potentially a multi-decade transformation under a government that is very pro-reform. Also, it is a very young country. 1.2 billion people with a median age of 27, who are starting to earn their 1^st salary, buying the 1^st car, etc. She also likes Korea where they have a new president, who is much more about creating jobs, as well as reforming the big conglomerates in Korea. She also likes China tech. Sees a lot of value, but also a lot of growth in emerging markets, and thinks this is where the opportunities are. There is still a lot of infrastructure left to be built in emerging markets.

Market. He is in a good situation, but is in kind of an unnerving situation where a lot of his portfolio is sitting at 52 week highs. There is a lot of noise about a coming correction, and it has really been a stealth one in certain sectors. He is still committing new fresh capital to these markets, but has a risk management plan in place. Because of that, he is not too worried about being precisely correct or being precisely top or bottom. His Stops do a wonderful job of weighing it out for him.

Markets. It bothers him that Trudeau has no plan in place to balance the budget. He is concerned about the debt in the world. It is unsustainable. Balancing the budget is important to the conservatives. Trump has been wavering on some of his promises. He said he does not like German trade. It is built on export and it does not matter if Trump does not like it. Markets don’t seem to care what he does now. Europe is not fixed because France did not elect an anti-EU leader. Italy has been underperforming the world for decades. This is a problem. Their banks should be a leading indicator as we approach the Italian elections.