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

Canadian Banks? These are in a very enviable regulatory environment, having very few competitors. They have stable businesses, make a lot of money, pay good dividends with reasonable growth. Also, there is the issue of the housing market. If there was a significant correction in Vancouver and Toronto housing, that would hurt all the banks. These should be a core part of your portfolio.

Canadian Federal Budget. We’ve heard that there might be some tax increases coming, potentially in the capital market, which would not be encouraging. The government needs to raise money for some of the initiatives they have, especially with infrastructure building which is behind schedule. To the extent that they use the money to accelerate infrastructure building to encourage innovation, that would be a good thing.

Market. To some extent, weak consumer sentiment is holding back Canadian stocks. The consumer in Canada is largely overspent. Debt levels have been rising to very, very high levels, which would put a lot of pressure on a lot of people if interest rates were to go up very much. Also, our economy has been a little more tepid than what has been in the US. There is a lot of expectation built into the US market that could prove to be somewhat disappointing down the road. This is a time to be cautious, paying really hard attention to valuations, what you are paying for stocks, why you are buying them, what is your holding period and how does it fit into your portfolio. This is a good time to have a reserve on the side.

Market. We are starting to see a global recovery, although the US market is still in the lead. He is waiting for more certainty on policy to be introduced by the new administration to back that up. NAFTA will be a year or 2 out, and certain sectors will benefit and others might not. That uncertainty tends to gyrate up or down, and we haven’t seen that. There have been over 100 sessions of the S&P 500 where it hasn’t dropped more than 1%, very unusual given the uncertainty. You need to be a little reserved when investing, to take into account factors that are not necessarily being factored in now. Globally, certainly in developed countries, equity markets are over valued in certain sectors. There is caution warranted, but not overly extensive. A bit of a “wait and see” game.

Lifecos? They have 2 components. One is the investment side, and the other is the business of selling life insurance. With interest rates going up in the past little while, that has been constructive for these companies, because of their investment portfolio getting listed in the income. Conversely, the selling of the actual life insurance is going fairly well, and that is the focus where you should be looking.

Market. Investing is understanding the risk profile of the investment you are making. For example, if investing in healthcare, the ball has been volleying back and forth and we are hearing lots of rhetoric. If you invest based on the daily news feed, you are really not going to end up in a very good place. We have to understand what is likely to end up happening. Both sides want the vast majority of Americans to be insured, so let’s go to a place that offers that insurance, and know that despite the volleying going on, the likelihood is that insurers, especially the ones in size and scale, are going to get the volume and probably the pricing power.

Market. He has had to go far and wide to find decent equities. He has had analysts in China, Japan, the UK, throughout the US, all in the past month. Today it is tougher to find value. Valuations are fairly full. He is finding more value in the UK now than he has pre-BREXIT.

Market. The US Fed just increased interest rates by 25 basis points, but no one expected only 2 more rate hikes so the market rallied. The big thing was in currencies. The US$ Index went down about 1% and the Cdn$ went up about 1%. That had a huge impact on commodity prices. The big surprise was that the strongest, based on ETF transactions, was not in North America, but outside in things like emerging markets, up about 2.5%. The key is to think outside of the box (North America), and you can do very well.

Canada. Technically the TSE composite broke a fairly important support level yesterday, 15,396. This is important, because the TSE composite completed a head and shoulders pattern yesterday. That is not good for Canadian markets going forward.

U.S. In the Dow, markets normally do okay until the new president comes out with his State of the Union address, around the end of February. Markets have a history of moving slightly lower in the next few months, because usually new presidents are trying to form new cabinets which takes time. After that, markets move higher. The key is to be patient for the next couple of months. You aren’t probably going to make much money in either the Canadian or US markets until after that.

European markets are outperforming both the US and Canadian equity markets despite all the European elections going on. Even better than that, are the emerging markets. They have the dynamic economies right now. That is where the real action is going to be over the next few months.

Cdn$. This has very strong seasonality. Historically, from around the middle of March, it normally reaches a very important low, and moves higher through until the middle of May of each year. It has a lot to do with US activity generating more demand for Canadian commodities.

Energy. Oil had a big jump today because of better than expected inventory data. The other component, of course, is the weaker US$. Historically, crude oil’s seasonality is positive this time of year. It has a lot to do with growing economic activity coming in the spring time. There is good reason to believe that it will be even stronger than average this year. This has a lot to do with the weather. He is expecting greater demand for crude oil and for natural gas.

Gold. Historically, gold and gold stocks have a history of 2 periods of seasonal strength. The most recent has been from the middle of December right through until the 3^rd week of February. It then has a history of moving lower. The other period of seasonal strength is from July through until October. We’ve now passed the period of seasonal strength. If you own gold, you want to use the strength meter that we are probably going to see in the next few days as an opportunity to lighten up.

Banks? These have sold off in the last week or so, and is providing a buying opportunity. On a seasonal basis, the banks normally do very well from about the middle of March through to the end of April or the beginning of May. This is the time when people are buying new cars, fixing up houses, spending a lot of money. The recent weakness in the banks is providing a buying opportunity for a nice seasonal trade, at least until around the end of April or beginning of May.

Market. We are in such a choppy period that a week from now the market could be either up or down and people wouldn’t be that surprised. Given that there isn’t a real clear path of where the markets are going, you have to be nimble. It is important to have a little bit of cash. He recently added gold for the 1^st time since December 2012, and has a 4% weighting in bullion, which provides him with some defence if there is a pullback. At the same time, he is still invested in high quality dividend paying equities. If the market goes up, his clients will be participating. If there is a correction, he is able to step in and do some selective buying. This is not an environment where you want to be sitting in 30%-40% cash. At the same time, it is a mistake to be overly bullish.

Advantage of a US DRIP program? The benefit of a DRIP program is that you don’t have to do much thinking. The dividend comes in and buys you more shares, without having commissions. The negative is that you don’t necessarily want to invest those dividends back into the same company. By not using a DRIP program, it allows you to be more tactical.

Market. Valuations are pretty stretched. Getting policies passed through the US is going to be a lot more difficult than just "tweeting" about them. The political backdrop of Trump compared with the valuation of the market, he struggles to see how the market can go materially higher from here. To him, the market looks very, very expensive.