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

Market. It is hard to find a valuation metric that looks low. Pretty much anywhere you look, all the markets are looking overvalued. Saying the market is overvalued/undervalued is an oversimplification of a complex question. The real question is, by how much are markets overvalued/undervalued. If they are overvalued by 10%, and you have a 5-10 year timeframe, that is not so bad. Maybe you are getting a 2%-3% dividend yield on that during a downturn and you are probably going to be alright. If you are 25%-35% overvalued, you may have a problem. The US P/E ratios, 1973-1975 to the present day, gives you an average PE ratio of 16X. However, that doesn’t take into consideration that the world has fundamentally changed with things like the Internet. In 1991, the Internet was essentially opened up to the public. When looking at valuations from 1991 on, you actually see a step up in valuations. If we take the average valuation from 1991 to today, you get about a 19X average P/E ratio. He is in the camp that thinks that 19X is a fair valuation, especially when you consider things like record low interest rates and pretty good growth coming out of the US markets.

Gold. He likes this as insurance in a portfolio. Probably 5%, but no more than 10%. The best hedge an investor can do is being diversified across industries, across markets, and getting some emerging markets, US and Canadian exposure.

Market. The market seems to be a little range bound right now, between the 15,000 and 16,000. On the lower end, he would be buying and then trying to accumulate positions that have come down a little. It seems that it will stay there until there is a catalyst to help us push through that. In Canada, maybe it is energy, and tax reform in the US, but doesn’t see those catalysts coming right now. Expects earnings will continue to be good. Waiting for the next driver to really push us. He would suggest having an overweight position in cyclicals, so a little energy, as well as some financials, maybe more so on the US side. Some of the REITs and utilities are still good core holdings, but you probably wouldn’t want to overweight them with rising interest rates on the horizon. The biggest concerns would be geopolitical ones, with the Canadian housing market little further down the line along with the Canadian banks. He is not seeing rising interest rates in Canada for the next 1-1.5 years.

Investing in bank stocks? There are positives to this in that they are very good companies and they don’t get the respect they deserve. His preference would be Bank of Nova Scotia (BNS-T) because of being outside of Canada in South America and Central America. You could also look at an ETF such as BMO Covered Call Canadian Banks (ZWB-T).

Markets. When you look at forward earnings expectations for 2017 the market is looking for 9% growth. The US analysts are expecting 23% earnings growth there. They are expecting tax cuts to help earnings, but we are not getting any tax cuts this year. If we go to GAAP earnings, we are trading at over 25 times earnings. The last time was in 2000, then 1987 before that. The markets are expensive. It is possible that the US debt will be extended beyond April 28^th without a bill. The problem is that Trump wants it to contain funding for the ‘The Wall’.

ETFs and Tom Caldwell’s Comments last week on BNN. The ETFs have the liquidity of the underlying equities. Larry believes Tom was wrong. Counter party risks are quite small. Other derivatives out there are much more toxic. ETFs will not cause a crisis.

Preferred Shares. They are fine holdings. The risks are significant moves in interest rates. In the last few months there were a lot of financial products being built around preferred shares. This has pushed up the valuations of preferred shares in general. They could come back down.

Educational Segment. Why Long Bonds are the Best Way to Diversify your Portfolio. You have to look at risk and return. Long bonds have the same or less risk as equities. You get a better yield from long bonds than from equities based on risk. Long bonds are the most negatively correlated to equities.

Markets. Current events are a reminder to investors that risk never goes away. The market priced everything in for the best of possible worlds. He thinks it is likely that someone may leave the EU before BREXIT negotiations conclude. There are serious problems in Italy. Investors should think about gold. It has come out of its 5-year bear market. The supply has shrunk.

Oil - 1 to 3 Months. Usually this time of year the price goes down, but refineries shut down for maintenance. There have been exciting things happening in the Middle-East. There is the possibility of a supply disruption that could affect prices.

Market. We have already started a corrective period, and now that we may be in it, any downside in prices will probably be capped with possibly 1 or 2 jolt days. It will be volatile next month followed by a crazy, roaring rally through to the end of the year. Right now, there is a big disconnect between sentiment and actual hard data. Longer-term, we have to bookend the 2008 crisis. Everything has not been written about that chapter yet. Because it was a secular sort of thing, the timeframe for that is long.

A good ETF or defence stock? Two names he likes and which have done quite well would be General Dynamics (GD-N) and Boeing (BA-T). On the other hand, you could always buy the ETF iShares Aero & Def (ITA-N).

Energy. There is still a massive glut in the oil market. The summer driving season is coming and demand is going to pick up by 1 million barrels. The problem is now April, May and June. US storage is at record levels, way above the five-year average. OPEC is hoping that with their 1.2 million barrel cut and the continuation of that cut through to the end of the year, that million barrels will allow things to grow in and begin to start to see inventories globally come down. In his opinion, OPEC is able to cut another 2 million barrels a day. In the past, when they made cuts, it hasn’t been one cut that has worked, it has been 3 or 4 cuts between a total of 3 and 5 million barrels. Also, risk premiums are coming back. 10-15 years ago there was a $5-$6 a barrel premium because of worries about the Straits of Vermouth, the Straits of Molokai, Yemen, etc. OPEC is hoping that the non-OPEC supply will give some credence and cut back, which to him it is a nonsensical idea. US is not cutting back. Canada is not cutting back. Mexico won’t cut back. Britain won’t cut back. They are hoping Russia will agree. The government of Russia is saying they are cutting back, but the 2 largest Russian players are selling every barrel they can.

Tonight's program is on taxes, not stocks.

Markets. Research has shown that 2011 through 2016 the traditional model of active management has struggled to add any value. Flows are out of hedge fund strategies and into passive strategy ETFs. He argues that you are taking only one category of active management and painting the whole canvas. You are in the gut wrenching cycle where you want to go passive management. Active management is working right now.