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

Natural gas? Looking toppy and seems to be wanting to break out. Seasonality ends right about now. The technical date is December 21. This coincides with some overhead resistance. This might come back in the next couple of weeks, and you could pick it up, but seasonality doesn’t start until August.

Market. This is not a time to be overweight in utilities, telecoms, REITs, etc., but it is also not a time to be totally out of them. Most are quality companies with earnings that are growing, and more importantly, dividends that are growing. They are not going to lead the market here, and in the short run they may suffer for a bit, but as a long-term investor he is happy to keep the quality companies. The tax rates in the US go down next year, so he thinks that there may be some delayed selling into next year for people taking tax losses. As a value investor, he is looking for things that have not gone up.

Market. He is very sceptical of this whole belief that the Donald Trump presidency is going to resurrect the whole US economy by his spending program, they are talking of as much as a trillion dollars. What they are really talking about, is some addition to existing spending, which is far less then that, and it’s over a ten-year period. If you spread it over 10 years, and are probably adding .2%-.3%, he doesn’t think the impetus of the spending is that great. These little snippets of information blows Trump up into bigger things, and people are all buying in. When Ronald Reagan came in, interest rates were coming off multiyear highs, and they had a lot of room to drop. Now, interest rates are at an all-time low, and there is only one direction to go. At the same time, there is potential for trade wars.

Market.Donald Trump made a lot of promises, and you have to position for both extremes. He expects that he is going to try to get through the agenda items which are easier, those agenda items that the Republicans have been pushing for, and ones that will be popular with both investors and the general populace. Thinks he will do the repatriation of capital. There are hundreds of billions of dollars sitting in offshore accounts, not coming back to the US because of very high tax rates. Thinks he will offer the possibility of a 5% tax rate. If this happens, expectations are that there will be $500-$800 billion back into the US, and likely going into a lot of friendly shareholder type share buybacks, dividend increases, special dividends and, as Trump hopes, spur the economy on. Another that is also likely, but to a lesser extent, is the corporate tax rate. Expects it is going to come down, and a 20%-25% rate is likely to happen. Hopes that the protectionist Trump does not come into play. There could be some problems on infrastructure spending, as he doesn’t think the party will be supportive of an increased deficit. Europe is very attractively valued, but you also need to be in the stronger US market as well.

Investments to generate income?Bonds are considered to be conservative, but you are getting a very low yield for potentially significant risk, particularly if they are longer duration. He would recommend preferred shares, particularly if they are taxable accounts. The rate you are seeing on most of them is 5%-6%. You need to spend the time to find the right manager who has the expertise and the track record.

Markets. Markets never continue to go in one direction. We often get a Christmas rally and the January affect. Once people realize that many of Donald’s polices don’t make a lot of sense the markets may reverse themselves. If you invest a lot in infrastructure, where do you get the labour from when you have low unemployment rates, what if you kick out a lot of Mexicans from the US.

Bank outside of Canada recommendation. Most of them have moved up so far. He still likes First US Bank Shares (FUSB-Q). He can see it doubling from here. It is based in Alabama. Otherwise he is taking money off the table in this sector.

Cannabis Stocks. He needs companies to be in business for at least 10 years. The area is expanding quickly and picking the winner is difficult. There is a lot of hype and hope. You have to look at balance sheets. He would like to see more clarity on the legal front.

Market.The Dow Jones is within striking distance of $20,000. He typically focuses on small to mid-cap stocks, but does follow every index. The Dow is the oldest of the indices and most commonly followed by the public. However, it is only 30 stocks and is representative of the broader industrial economy. Since the election, stocks have been doing quite well. It wouldn’t surprise him if it hit $20,000, because sentiment around the US industrial economy is quite positive. Once Trump actually takes office, things are going to get a little harder. It’s easy to announce all these programs, but a little more difficult to implement them. From a seasonal perspective, he thinks there will be some reversion. There are a couple of drivers late in the year that typically have a major impact. January is usually a very good month for gold, and because they are so oversold and with tax loss selling, January could be a very nice month for the gold sector. Stocks that are really oversold that have good valuation and good fundamentals should do very well over the next 6 weeks. Tax loss selling is different this year because of the violent rotation of winners and losers late in the year.

Economy. This has been a 35-year bull market and there are significant changes coming. A chart showing 30 year US government bond yields from 1981/1982 on showed a long decline in rates. We’ve just had 2 Fed hike rates, which means a lot in housing, because mortgage rates have gone down each time. For the last 4-5 years, a lot of people have been sitting with 3% mortgages. When they have to renew, they will probably be looking at higher rates. People should start to prepare for this. In the last 10 years, pensioners have taken it on the chin because they’ve been trying to get safety with yield to prevent erosion of capital. It hasn’t worked as yields have continued to trickle lower and lower. He wants to have yield, but also needs to have growth. The government would like to have more inflation and have been jamming rates down hoping to get it. On the other side, all this new technology, such as Uber and Amazon, is actually deflationary because costs are going down. The demand for commodities is not what it used to be. He is also using a “Progressive Value” approach, like a “growth of the reasonable price” system, and is looking for companies that are well valued, but with good growth prospects.

Market.This has been a year to remember for investors. When we entered the year, we didn’t have very high expectations, and yet look at the markets that we’ve had. That happened in spite of all the things that came in to shock the market. We had BREXIT, Trump winning, the migrant crisis, and at the same time we still have the carryover of the same problems with Italy, Portugal, Greece, etc. Those haven’t been resolved, and yet politicians have almost been taking a deny and delay tactic towards that. In spite of all this, the market just seems to keep moving up. People predicted that after the post Trump victory, markets might go down. A lot of people made the wrong bet on that side, and instead we have probably had one of the longest postelection rallies in history. We still go into the next year with relatively high valuations. All those problems are continuing to follow us, and yet expectations seem to be very, very high in the market. As a value investor, that makes him a little nervous. He is happy to be carrying a fair amount of cash on the sidelines, as there may be opportunities to catch some fallen angels next year. In the last quarter or so, he has probably been a net seller rather than a net buyer of securities.

Markets. This year small caps in Canada have outperformed for the first time in years. A lot of golds got moved up and out of small cap indexes. A lot of managers didn’t own gold earlier in the year. He tries to pick the best stocks in each sector and to have a well diversified portfolio. It has a lot of sector rotation recently.

Marijuana. He bought one stock (APH-X) and did extremely well. He does not understand the valuations on these stocks now. It is a tough industry right now because the stocks are all going up and the multiples are extremely high. This is not the time to get in but APH-X would be the one he likes best.

Market.The Dow is almost at $20,000, and he can almost guarantee it will get there. However, it is just a number and the Dow is a pretty lousy index. The highest price stocks are the ones that move and have the most influence on the Dow. Goldman Sachs (GS-N), which has done nothing until a few weeks ago, is the highest priced stock on the Dow, while one of his favourite stocks, Visa (V-N), has done nothing this year. The Dow is a collection of very good companies, but price movement doesn’t tell you very much. More importantly is the market capitalization weighted index, the S&P 500, companies based upon the size and shares outstanding multiplied by price. You want to have a portfolio of uncorrelated stocks so that things don’t kill you when the marketplace goes down. A lot of people are betting on interest rates going up, inflation and material and commodity prices going up, so people are betting on those interest sensitive companies. If they are wrong, they are going to be in for a world of hurt. They are selling the interest sensitive names like REITs, utilities and pipelines. The best approach is to have a diversified portfolio of your best companies. If interest rates go up, maybe some will do well and maybe some won’t, but over the long-term, (2-5 years), it shouldn’t mean a thing if you own good quality names. 3 out of 4 years, the market goes higher. He always wants to position his clients for the long-term.

Markets. In a post election year markets typically go higher. The market typically goes up until inauguration day, then pulls back and then goes higher again. During big changes in government you get big changes in markets. When Eisenhower and Reagan were elected, markets dropped from inauguration day until September. Be careful for now because markets are overbought. Between now and inauguration day you should still do well. The TSX typically goes up more than 2% in that period.