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

Market. Feels investors in general are still feeling that the glass is half-full at this point. Although markets have faded a little in the last couple of weeks, they haven’t ripped roared up as they had been since the election. PEs on the American markets have pushed up to about 18X on a forward basis, 17X on the TSX and 18X on the S&P, the highest level since 2002. We could be looking at some sort of a pause or a healthy consolidation at some point. Since bond yields bottomed in July before the election, and inflation started to rebound in 2016, there has been a significant rotation from the perceived safe assets into riskier areas. With interest rates moving higher, you have to be careful of names that are just dividend payers, and are not able to move dividend yields higher going forward. It appears the market is shifting from an interest rate driven type of market to one driven more by earnings. Feels value names will outperform growth once again this year.

Cdn$ or US$? The US$ is moving higher against most currencies, including our loonie. The loonie has dropped to its lowest level of the year so far, at $.74. Last year it dipped below $.70, and could very well get there again. He is bullish on the US$ as there is more selection in the US market, and more opportunities with US equities.

Market Investing. Donald Trump’s unpredictability and its effect on the market heightens the case to have somebody actually selecting securities. With his there will be uncertainties, and with uncertainty you have volatility. You don’t want to be standing still. A passive approach to investing would be very problematic in these times, so active management is very important. Instead of trying to forecast what is going to happen, the best thing is to follow the money. Every point on the chart he follows, is validated by real money, so looking at a chart, you know where the money is going. The chart is the best risk management tool. Just by looking at it you should know whether you should be buying more or selling. The TSX chart showed money coming in from 2013 into 2014, money going out in 2015 and money coming in from early 2016. His 2^nd approach is Multi-Market Analysis. The world is made up of 4 major asset classes; commodities, currencies, stocks and bonds (the interest rate market). When big money moves through the market, they often cross asset classes. If you follow all of them, you have a much better chance of knowing where the money is coming from and where it is going.

Benefits to the US from a strong dollar? The US is the largest debtor in the universe. A strong dollar is always good. It keeps investors confident to buy and own US Treasury debt. It also keeps the US in a dominant position in the world. Chart shows that it was breaking out in the latter part of 2016, as well as testing old highs and making a new high, which are all bullish signs.

Dow Jones Industrial Average. Are we on the brink of a market collapse? He doesn’t see that at all. The price action has been very strong. Any market collapse usually needs a topping formation. You need to build up overhead supply before the market can crash. As of now, buyers are very persistent and are willing to pay progressively higher and higher prices, and sellers are kind of shy.

Energy. There is a lot of dynamics happening from the Middle East and we are seeing a little of it. Thinks oil stays around the $60 level. It is going to be volatile because there are many things going on. A lot of the shale companies are in better shape and are willing to produce a lot more oil. You are a buyer at $50 and a seller at $60. In that lucky environment, it may get up to $65-$70, but you have to see a lot of good things happen in the economy to push it up there.

Canadian Uranium mining? Canada is blessed with some of the best uranium projects in the world. Uranium price has suffered, but we are probably coming off a bottom now. According to the World Nuclear Association, they are calling for the supply deficits open up in about 2-3 years’ time, so he is expecting a nice recovery in uranium. (See Top Picks.)

Market. He is very bullish on the market and sees it going higher. Unquestionably Trump has been good for markets, the stage was set for a reflation trade. You have very tight labour markets in the US with increasing wage pressures. There are all these underpinnings that are very strong, however we have had a big move. There has been some mixed data recently, namely the 10-year retracing back to a yield level that we saw in November. Gold has done reasonably well of late. All these are worrying signs for the continued faith in a bull market. A certain element of caution is warranted. Looking out over the next month or so, he doesn’t know if we are going to get a big pull back. There will be periods of softness where there will be a few months where the market is down 1% or 2%. You have to be a little cautious going into the market, seeing that we have had a big move. Caution is probably the order of the day for the next 2-4 weeks, until we see if the Trump agenda can actually be implemented.

Energy. Oil is probably range bound, so he doesn’t see a huge catalyst for many of the names. This is a sector that you don’t need to be overweight in. We have a pro energy administrations south of the border, however we do have an abundance of supply right now. While the OPEC agreement seems to be sticking, it is sticking at 75% of what was originally agreed. We are in an overcapacity world right now.

Markets. The Chinese growth story is over. Chinese debt (gov’t, corporate, personal) from the Lehman moment was about 165% and now is pushing 265% debt to GDP. The Chinese economy that was growing at 6-7% was 100% fueled by debt. The economy is still growing, but just because they are slapping on the debt. The demographics in the world are a big problem. With protectionist policies under Trump, Chinese growth will have trouble keeping going. Canada is only growing this year because of debt.

Treasuries Outlook: The longer the maturity, the more negatively correlated it is, compared to equities. The long bond is the best hedge. The longer bonds are starting to find support whereas short term are starting to back up because of the fed rate hike scenario over this year. We are getting a flattening of the yield curve, forecasting economic slowing. If the market was forecasting inflation then the long bond would be selling off more.

Covered Call Protection against a recession? ZWU-T is the safest one. It yields about 7%. In a recession that will give you the best protection. ZWB-T would sell off more. ZWC-T looks at the best dividend paying companies with covered calls.

Oil bulls think we will rebalance and energy will go back up. He is a realist. He just bought a plug-in hybrid car. The first 30 km of the day it runs on electricity. All the cars are going this way. Demand for oil is going to come down in the developed world. The TSX energy sector is priced at $60 oil. He is very underweight.

Educational Segment. Long Term Investor Psychology. Per unit of gain in a portfolio, the psychological value diminishes as you get more. The more money you start to lose, the more you increase your unhappiness per unit of loss. When we get complacent after a period of gains, this is our biggest point of risk.

Markets. Something really big is underway. We are going back to a 90s style funding culture of exploration and discovery. In the last month the shift has brought it back home to him when companies started reviving projects that did not work in the past. They are now doing brute force drilling and not only hoping to hit something, but gathering a lot of geological data.