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

REITs. He does not own any. He owns Dream Unlimited. REITs in general are just more interest rate sensitive than he likes. If you believe rates have bottomed and will not move much higher you could get some good returns out of it. DRG.UN-T is one he would like.

Market. We are coming out of a 3-year period where bonds have outperformed stocks. It now looks like we are coming out the other side, which raises the question, are we going to hit 20,000 on the Dow. In the very short term the answer is yes. He is expecting a bit of a correction in the 1^st quarter, but once that is behind us, it is onwards and upwards. You will have an opportunity to sell bonds over the next 2 months as the prices move back up and yields come down a bit. Take the cash and put it into equities, because he thinks there is lots more legroom and upside on equities over the next 2 years.

Market. We are definitely getting a little boost from the Trump rally, and thinks it can continue for a while. Longer-term, he is a little more worried about the protectionist and nationalist type policies that can spur inflation, making goods more expensive. Inflation is not a good thing for the market. Energy is still recovering, but is still nowhere near where it used to be. Companies have kind of adjusted to the new lower energy prices. Still thinks there are a lot of opportunities in energy.

Markets. It is amazing what is going on in Asia. The Libor rate hit 80% overnight in Hong Kong. Is there such a US dollar shortage in the world that China is willing to pay anything for a US$? The US$ is going up. The dollar index has seen a 5% increase since the election. Last night there was a huge rally in the Yuan, to stem capital outflows. You are going to see some volatility based on the US$, and today is a down day. He has no prediction on the markets this year. In the first year of a new president, markets are usually down. 2017 is ‘hold onto your hat, as there will be lots of volatility.’ But you can always make money with volatility.

Market. His clients are a lot happier now than they were a year ago. Going into 2017, he is cautioning his clients. 2016 was a great year but expects returns are probably going to be in the single digit area. His long-term strategy is to get returns of 6%-8% for clients, and this is a year that he thinks he can do it. The market right now is at about 17X forward earnings. The top of the range is 18X and the bottom is 15X. If there is a scare of inflation in 2017, the multiples are probably going to come down. Earnings may still go up, but what they are going to pay for it, they is going to go down. His portfolios have likely reached a maximum in economic sensitivity. That is the more cyclical parts of the market such as energy, commodity materials and industrial stocks. They are about as high as he would go now. This market started its uptick in 2009, so it is getting a bit aged, and he thinks we are somewhere in the 8^th inning.

Market. This year is different, because we have a president that nobody can predict. It is impossible to have any notion of what is going to happen in the next 4 months, much less the next 4 years. He is queasy that some of the certainties we could count on, like NAFTA and a certain level of civility, are just not going to be there. Thinks a corporate tax cut is priced into the market, but doesn’t know that repatriation is priced in, because we haven’t seen a big move on the tech stocks like Apple and Google that have a lot of cash overseas. The biggest uncertainty might be with the supposed huge infrastructure plan. He is not sure that Congress is going to buy into that, particularly on top of tax cuts. He can see a lot of instability, between BREXIT, Marie Le Pen and Angela Merkel. On the other hand, the euro is approaching parity, which is very positive for euro stocks.

Canadian Banks? Doesn’t think it is too late to get into the sector. They’ve had a terrific run up, and certainly more expensive than they were. It is a fallacy to stay out of the market because you think you are going to get a better price in the future. People miss out on a lot trying to get the best price. Canadian banks are not terribly expensive, especially compared to the fixed income market. Bank of Nova Scotia (BNS-T) is his biggest holdings because of its international exposure. He also likes TD (TD-T) because of its US exposure, and National Bank (NA-T), because on its metrics, it is still the cheapest.

Marijuana stocks? His problem with this is that he doesn’t think there are any barriers to entry. Once the product becomes legal, even if it is regulated, this stuff grows like a weed. People can grow it in their backyard. Nobody is going to get arrested once it becomes legal. Thinks the margins producers are going to get, in the long run, are going to be very, very small. Currently this is a bubble and people are going to get injured.

Market. He’s been in the Dow 20,000 camp for quite a few months. Technically, this is only important once we touch it, and then we can move on from there. Right now it’s a technical issue, a resistance point, because it’s a psychological number and we are having trouble getting through it. Once we get through it, he might be more interested in it. We have moved awfully fast in a meteoritic rise to almost 20,000 from 17,000, and it’s just too much too soon. To have a year’s moves in multiple months, it is time to take a win. Stocks just don’t move this way in one direction for very long. The move we’ve had now, has been too much, so we have to come off a little, consolidate, and confirm that we are ready to stay at these levels. The next move through 20,000 will be more dramatic. This current run looks like it is losing steam. The support level for the Dow is at 18,500, so far off from where we are now, because it has gapped up so quickly. The S&P is the same, 100 points higher than we need to be without testing a support level.

Market. There is an issue in that Donald Trump has promised a lot of things, but can he execute them within the 1^st 90-100 days. How will the people he selected work with Congress to get things done? There are a lot of expectations based on that, and the stock market has run up on what they feel is a much more business friendly environment happening. Also, what happens to interest rates and the US$ with that. There is the question of how Trump deals with the rest of the world. There are also a lot of changes coming in Europe, potentially on the political side. 2 major countries in Europe, that kind of forged the EU, may have changes, or certainly have less power than they did before. Also, are we in a much more inflationary environment going down the road in a year or so?

Marijuana stocks? The problem is that there are such high expectations. One has a $1 billion market cap, but only $1 million in revenue. That makes no sense in any kind of dynamic. Like many of these things, he expects it will blow up. If you are involved and have made some money, you should take some off the table.

Market. After the Trump election, there was a complete reversal of sectors. The sectors that were performing into the election, were completely reversed. US banks were underperforming, and suddenly started performing. The only thing he is a little concerned with is how fast the market moved recently. Things are a little overbought. Technically, sentiment is a little overdone. There are some seasonal cycles that suggest that we may see a little more upside for the next couple of few weeks, but he wouldn’t be surprised if it took a pause in the latter part of January. There is nothing to be bearish about, other than the probability that the market is a little overbought right now, and there may be a small pull back in the next few weeks. Other than that, he is relatively bullish. Something that might drive the market up is the presidential inauguration, where markets tend to rally into them. The longer and mid-term cycles are good, and the short-term cycles could go either way.

Markets. It is concerning that Trump may not be able to do what he has promised and yet markets have rallied. Tax cuts could be positive on the earnings side, but he is worried about how they would be funded. Are there enough shovel ready projects out there? Reforms around health care are causing a lot of concern. A clear positive is the financials. They are already benefiting from higher interest rates and will benefit from lower corporate tax rates and higher interest rates. This is the sector for 2017. It gets complicated as to whether you prefer US companies who do business around the world because of currency hits.

Market. This has been an interesting year for forecasters, if you think about BREXIT, which virtually no one forecasted, and then the Trump election, it hasn’t been a very good year for them. No one forecasts the stock market very well in the short term, so he doesn’t make any effort to do so, and is quite happy to stay on the sidelines. The market has had a heck of a rally since November 9, and fundamentals have gotten ahead of themselves. His style is pair trading, so he can afford to be agnostic as to what the market really does. Volatility is his friend in the way he invests.

Market - Traditionally, when we end a 2-term president, and the other party takes over, there tends to be some market weakness. He thinks the correction will be shallow. Between now and early February, you probably should be looking at some names you want to own. Those procyclical themes we saw before the election, materials, financials, energy, some technology; they should really be carrying the water through the spring and into the summer. Into August and late fall, we are going to have a better idea of some of the headwinds.